FLIP using PRIVATE MONEY & OWNER FINANCING

17 Replies

@James Hiddle
I think we're not on the same page Hiddle.
I don't think buying a house for $50,000 and then selling it for $100,000 is a crappy deal.
Here's an example of a typical deal for me...and I've done this many, many times... over a 1,000 times...using private money and owner financing:

$50,000 acquistion price
I borrow $53,00 from a Private lender @ 8% interest only,5 yrs, none -recourse loan.

My Monthly payment = $353~

$3,000 just went into my LEFT POCKET

I DO NOT FIX UP HOUSES

I owner finace the house for $100,000
5% down.

$5,000 just went into MY RIGHT POCKET

By the way, you don't need an appraisal to owner finance, nor an ispection, nor a credit score. The Seller and the Buyer decide if there is a sale or not.

I finance the $95,000 @10.5% for 30 years

Their payment to me is $869 P&I

The difference between what I owe and what I'm owed = $516/mo.

SUMMERY:
I got paid $8,000 to create a $516/mo positive cash flow.

The new owner begins to repair the house (I took a small down payment because the house needed work...you really couldn't hurt the house much...except to leave it vacant).

When the onwer finished the repairs the house becomes worth more like $120,000

I sell the note for %93,000 cash because the disparity from between the note balance and the owner financed sale price is so great you don't need to take much of a discount. If I sell for $93,000 and I owe $53,000 I will clear $40,000.

I think $40,000 is a long way from crappy.

So...call it a crappy deal..but may I suggest that if you can do this 20 times and you make $160,000 up front and create a cash flow of over %10,000 per month...while you go to work on collecting 20 x $40,000 = $800,000

$10,000/mo gives you cash flow as if you had $1,000,000 in the bank at 12% annual interest. And what active RE investor worth his salt can't earn 12%?

In short...it makes you a millionaire on paper. In fact, your $160,000 collected in down payments + 1 year of collecting payments ($120,000 annual income) added to what you can sell your notes for ($800,000) make you worth right around $1,000,000

I like it!

NOTE TO SELF: How much of my money do I have to have to do these deals? ...ZERO!
So the rate of return is as good as it gets.

Now, not every deal you do has $50,000 srpead. I only used this example $50K$100K because you thought it was "Crappy Deal." I did very well when my deals only averaged $20,000 to $35,000
Spreads.

--Mitch Stephen--

--Mitch Stephen--

As I mentioned in your other thread with the same topic, in my state this would be absolutely illegal unless I did very few deals and I titled them all in my name. SAFE ACT legislation restricts seller financing from a business entities and doing more than a couple deals per year.

I'm under the impression it's illegal in many states these days. So, anyone considering this should contact their local department of banking and finance (or whomever is the governing body in their state).

I don't know why your post was split off from the other thread but I wanted to clarify that it was a poor example as far as a fix and flip standpoint.

I don't remember what your earlier post said but that's what I was referring too and if your example was referring to something else than my bad.

@Mitch Stephen was this intended to be part of your previous post? If so, I can put them together.

I think the part @James Hiddle may be skeptical about is not the financing part of this. Rather, its finding a house you can buy for $50K and turn around and sell for $100K. He said:

Mitch that's kind of a poor example since you have to factor in closing & holding costs,commissions,repairs,etc in which case by the time you factor in all of that the deal looks like crap.

I think he was assuming that a house that could be bought for $50K and sold for $100K would needs repairs. And there would be transaction costs. Your post above says no repairs are needed. No transaction costs are involved. The place does need repairs, but the new owner spends money on those in addition to the $100K he pays you. At least that's the part I find hard to believe is easy to do on any consistent basis. Once in a while, sure. But over and over? How do you find those deals?

How do you avoid SAFE act issues? The SAFE act was intended, among other things, to block inflated sales to naive buyers who didn't understand what they were getting. Sorry, but that sort of sounds exactly like what's happing here. You're buying for $50K and turning right around and selling for $100K without doing a thing to it. That seems inflated to me.

@James Hiddle
It's all good James. No worries. It made me get clear.
I've been doing this so long I sometimes forget that without all the tiny details its not clear exactly what I doing. Also, it's hard to get others out of the preconceived ideas about flipping. You don't normally flip for Cash Flow as a general rule...flipping generally means flip for lump sums of cash...you "cash out." I prefer "cash-in" ...for a long time.

I am flipping in the sense that I'm NOT the owner anymore. But unlike traditional flips, I remain a major principle, in the form of the financier, for years potentially.
-Make money when you buy
(Borrow a tad over what you need)

-Make money when you sell
(Keep the down payment)

-Create a monthly cash flow
(Spread btwn what you owe and receive)

-Make lump sums when notes come of age.
(Sell note off if you choose)

--Mitch Stephen--

Looks like a scam artist deal to me Mitch, no appraisal so keep the new buyer in the dark, non-recourse financing on private funds, geeez, really put alot of thought into this. :(

@Bill Gulley
Really Bill? It sounds like a scam to me that the law makers are making it impossible for middle and lower income America to buy a home. When did it become a scam for a buyer and a seller to make a deal without someone else's approval? When did a no-recorded deal become a scam? People loan "Non-Recourse" when the collateral so far out weighs the risk that you don't need a personal Gurantee or anything. Non-Recourse generally indicated that the BORROWER has everything to lose...not the LENDER. The lender has a HUGE PIECE OF COLLATERAL!

You've insulted me Bill. Don't appreciate one bit!

1,200 deals
NEVER been foreclosed on ...ever!
Never left one payment unpaid...ever!
Been in 3 lawsuits...won 2 settled
Insurance company wanted to settle the other.
My investors have been with me for so long I now make payments to 7 widows in there late 70s to early 80s...and I take care of everything for them cause I promised their late husbands I would...and I do.
I have borrowed and repaid over $80,000,000 in my 18 year career...one house at a time.

Now I know there are people out their that are bigger...but there is no one better.

What is it with some of you guys. You think you can just talk to people you don't even know like you have some kind of superior insight as to who your talking to and what they've done and where they've been. Who do you think you are?

--Mitch Stephen--

Stupid spell check errors...

No-record = non-recourse
Their = There
There = They're

Originally posted by Mitch Stephen:

Really Bill? It sounds like a scam to me that the law makers are making it impossible for middle and lower income America to buy a home

Sure but is that an excuse to break the law? The SEC makes it harder for the average investor to market for private money without spending tens of thousands of dollars for a PPM and/or a SEC Reg filing but does that mean I'm going to skirt around the SEC laws just for my benefit HELL NO sucks but that's the way things operate nowadays.

And I also noticed that you still haven't answered anyone's question on how you work around the SAFE Act. Now I'm going to ask the question:

How do you do this and remain compliant with the SAFE Act?

In Texas you can hire companies to keep you SAFE ACT compliant. You can sub-out the loan application process to a license holder. Companies are popping up all over the state.
Don't get one state's laws confused with other State's laws. I didn't just make this path up...it's been a long process. In the beginning, we were all in the dark. Lots of people, known to me and not known to me, have arrived at the same interpretations.

--Mitch Stephen--

--Mitch Stephen--

Here's an informative link on the Texas SAFE Act:

Texas Dept of Savings & Mortgage Lending:
http://www.sml.texas.gov/tdsml_faq_mb_texas_SAFE_Act_seller_financing.html

From the link above:

Texas Finance Code, Chapter 156 has a de minimis exemption from licensure for an owner of real property who in any 12 consecutive-month period makes no more than five mortgage loans to purchasers of the property for all or part of the purchase price of the real estate against which the mortgage is secured.

Where a seller financer exceeds the number of transactions exempt under the act, the seller financer must either become licensed as a residential mortgage loan originator or must engage a licensed residential mortgage loan originator to conduct all loan origination activities that require a license, including taking applications and/or negotiating the terms of a loan.

Horse feathers!

Sorry it took years to figure that out, I've done basically the same time and it just comes to you quickly when you have a private lender sitting in front of you, you know a house you want to buy and you know you can flip it, sller finance it. But, the difference is one in finance and I guess someone on the street trying to figure it out....be that as it may....

No problem with the spelling errors, my fingers fly faster than my brain fires, especially if I'm ticked, but I didn't mean to insult you personally Mitch, I didn't say you were a scammer, I said the deal, the system, appears to be unethical. Mainly arising from the sale price you claimed. (Actually, I think that might be a little fluff just to make it sound better).

My deals didn't have anywhere near double the price, the loans were with recourse, additional collateral was given for amounts received over 80% LTV, some were made as assumable loans that took me out with the private lender's consent, some were wraps, some made with seconds, my company serviced the loans and made a spread on the total amounts financed as well as mine, of course I sold notes as well as partials, and I could refinance the loans as well. Certainly not rocket science and that's how I started one of (if not the) first seller financed servicing companies.

But, I went a step further, my servicing included a loan guarantee that if a borrower failed to pay I would advance the payment to the private lender (that 80 year old widow) and stepped in to secure the property, dispose of it and pay the lender off or make it a new deal. :)

As to my crystal ball allowing greater insight, most just call it experience and knowledge. I have to say too, having been in the regulating business enforcing all thoses scamming laws the lawmakers passed does make me suspicious more than the average investor type.

Maybe if you had claimed to sell those for 65 or even 70K, red flags, rockets with red glare, sirens and my BS Meter would not have gone off leading me to my comment about the "program"......and aren't you teaching some system for a fee (?) that's my impression. If so, I understand the marketing fluff if that's it.

I wasn't concerned about the SAFE Act, but borrowing at that level the SEC comes to mind, but I'm sure you have that covered with your investors, wondering if any of those investors are buying the notes too, that becomes several issues, but, whatever.

I'm addressing the "program" Mitch, not your integrity or ethics..... don't take it so personally.... :)

Forgot, you might look into loan servicing issues since the money was borrowed and not your money, as is the case with a private loan portfolio. Servicing regulations are another ball game aside from the SAFE Act or loan brokering. :)

@Mitch Stephen

I mentioned this on another thread but how are you finding deals like this so often?

Mitch has done well over 1,000 deals in the San Antonio area of Texas, and been holding a steller record. I had the honor of meeting him several times while working for a local organizer for REI meetings. As far as I know, he run buyers through an RMLO (Residential Mortgage Loan Originator) to keep in line with Dodd-Frank and other regulations.

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