Using Note Investor for Seller Financing Deal?

6 Replies

BP Family,

I want to buy the property at 123 Maple st. with low or no money down from the owner, Joe Seller. 123 Maple st. has an existing mortgage and less than 10% equity. How can I accomplish my objective?

Here's what I was thinking:

Joe Seller finances 100% of my purchase of 123 Maple st.. Because Joe Seller's bank reserves the right to accelerate his loan when Joe Seller sells the property to me, I contact Mike, a note investor who is willing to buy the note created from the seller-financed deal. At closing, Joe Seller deeds 123 Maple st. to me. I give Joe Seller a note. Joe Seller sells the note to Mike. Now Joe Seller has the money to pay off the mortgage he owes his bank.

Is this possible? Is this advisable? Is there another way to accomplish the same goal that you feel might be worth considering? Thanks everyone in advance!

Originally posted by @Darren Eady :

Why would Mike buy a 100% LTV note paying him bank interest rates? That is the flaw. You would have to make it worth it for the guy with the actual money or it won't work for anyone.

 If I prepaid 6 months of payments in advance (and negotiated a prepayment discount), I could establish a little bit of a track record up front.  Also, I was thinking the note could be amortized over 30 years with a 5 year balloon @ 6%.  Does that help at all?  What suggestions do you have to sweeten the deal?  Thanks for the quick reply!

@Edward Stephens   9 to 12% is the going rate on these deals.  and it depends on equity.. Equity is usually 30 to 50% ... if your writing a note for Full value of the property. Then as @Darren Eady   states this is a non starter and a waste of time.

@Darren Eady and @Darren Eady, I understand that note investors want a higher rate of return than just 6%, but follow me down this path just a little further (if for no other reason than my own education and the education of the readers). If 123 Maple st. is appraised at $120k but I get it under contract for $100k, will the LTV be $100k/$120k = 83%? And would that make the deal better for the note buyer?

Your valuation is an issue. Lenders typically value the property within the first year of ownership at your purchase price (if you can buy it for that amount, anyone could buy it for that amount, so that is what it is worth). Plus, LTV only speaks to the risk of the investor if he had to take back the property. Still your 6% interest rate is the ONLY thing you are offering to the investor, so it's a non-starter and a waste of time.

Keep doing what you can to build up your funds so you can put some skin in the game and you'll have a ton more luck!