Free Community Book - Chapt 8 - Seller Financing

16 Replies

I would hope everyone has had a chance to download the new BP community book

Check out my chapter on Seller Financing, Dodd Frank, and making money on thin equity deals.

All the other 11 chapters are awesome too.

Best Wishes,

Brian

Download the book here

Your seller financed chapter was good because the described benefits were not the ones I look at. You should have opened up a little more on the seller financed properties that are free and clear.

Though good chapter and book.

Holly crap! Now what was done?

Snuck one by me. Yes, I'll take a look, gotta say, I'm initially skeptical on the SF part. ????

Well, it's a pdf, can't get it now, I'll get another computer out. LOL :)

Thanks for your feedback @Frank R.

REIs need to be cautious about selling on terms to owner occupants.

Free and clear houses do have a great opportunity for REIs to make money, just get a good cash flow between rent to Owner Occupant and PITI to Owner Held Note and other costs, just as Maintenance, Tenant Issues, Taxes etc.

Many REIs its seems are paycheck to paycheck, so Lease Option Assignments are less intensive when first starting out.

Free and Clear houses are awesome for retirement.

Say you have a $100K house, retired couple.

Give them $102K for the house with a monthly payment that works for to get a cash flow from market rent. Imputed Interest is an issue. See

http://apps.irs.gov/app/picklist/list/federalRates.html

I like the terms "annuity", "cash flow to give your kids or your church", and retired people think about their kids and leaving them some money, so leaving their kids a cash flow instead of a house is a great idea.

You should look at the IRS website on Installment Sales

http://www.irs.gov/taxtopics/tc701.html

http://www.irs.gov/taxtopics/tc705.html

@Steven Hamilton II and @Bill Walston are great tax guys here.

And @Bill Gulley always has good ideas on installment sales.

Thanks for the comment, Frank.

@Brian Gibbons

Thanks for pointing out that chapter. I'll be setting time aside to check it out!

Well, I'm off the ceiling now after realizing Brandon edited the book, I'd think he would have said something if there had been anything grossly out of whack. So, my blood pressure is back to normal.

Investors just don't run out copying notes and doing contracts without an attorney, every state is different.

As I've mentioned before, the issue with financing books is compliance and differences state by state. Installment contracts can have issues.

Oh well, no one will die. :)

Originally posted by @Bill Gulley :
Well, I'm off the ceiling now after realizing Brandon edited the book, I'd think he would have said something if there had been anything grossly out of whack. So, my blood pressure is back to normal.

Investors just don't run out copying notes and doing contracts without an attorney, every state is different.

As I've mentioned before, the issue with financing books is compliance and differences state by state. Installment contracts can have issues.

Oh well, no one will die. :)

I know you have "corrected" many executory contracts, Bill (cfds, wraps, etc).

My advice is always "Get LOCAL legal and tax advice, always".

How was your adventure "on the ceiling"? lol

It was fine, it's 12' but I came down slowly.

Over the years having thousands of loan arrangements passing over my desk I've seen some real junk, predatory deals, poorly written, attorney drafted contracts where they had no clue of financing requirements, about everything that could be messed up was done. I'd get involved not from a profit standpoint but just in making things right, I just hate seeing anyone getting screwed over, buyer or seller. I even had the MLS sale contract financing section changed due to oversights.

Got a PM from an attorney who made the comment that if he couldn't (assist or be involved) be right about something he didn't want to be involved. That's pretty much my feeling. No one can be right 100% of the time, but it is the goal.

SF is more complex than making a funded loans and if you do a SF deal without understanding lending guidelines and it works, you got lucky or had a borrower who could have qualified. Ultimately, SF deals need to be refinanced, if you don't have a clue what those requirements are you don't have a clue as to what to shoot for. You're qualifying someone into the future, not the day you do the deal so much. There is hand holding involved, teaching personal finance and in some cases changing attitudes getting someone back on track, it's not just finance it's also psychology, salesmanship and credit analysis is deeper.

Loan guidelines are in volumes, not just a book. Yet investors seek the "how to" of a more complex aspect that incorporates most all of the established guidelines in a single book!

The thought of writing a book on seller financing has been dancing in my mind for a few years. My conclusion, it can not be done! Not in one book!

However, there is reality! I realize investor types don't take no. I can't help thinking that if SF deals were standardized as to forms for various strategies and underwriting adopted in plain English it would clear up many of the problems. Then you have`state laws to contend with, can investors really be trusted to take a form to a local attorney to ensure compliance? I'd like to think most would, reality is some won't. Then it's an issue of promoting some bad behavior isn't it? If a doctor wrote a short book on how to surgically remove a foreign object form a stomach for non-medical folks, would that doctor not have any responsibility for botched jobs by untrained surgeons? On a professional platform I see it much in the same way. Then you have untrained authors putting out "how to" books to make a few bucks, some wanabe gurus mixing kool-aid! Oh well.....

I've never had a problem with the marketing side of SF deals, most are receptive when you spell out the "light technical" side rather than using a sales pitch, well, there is a bit of sales in conveying the benefits. :)

.

Brian great introduction to seller financing. It has been the only creative strategy that has truly made sence to me and in my area they have been the only offers that seem to get accepted. I have found that submitted 2 offers to motivated sellers followed by justification behing the numbers has help get my point across.

The offers are usually a huge contrast to each other, one being a wholesale offer .55 cent on the dollar and a seller finance offer .95 cents on the dollar. usually sway the seller pretty quickly.

When I started, even now bulk cash was a neccessity so all my seller finance deals have been assigned. Now knowing what I know I wish I would have kept them for cash flow.

I have an MLO I use in my area. She is maybe 1 of 3 on the area that works specifically with REI and considered the know all when it comes to Dodd Frank.

One thing that you didn't touch on and I am sure it is was on strategic. Is the regulation around selling on terms if your buying on terms. In other words selling via Lease Option, She has explained that if you have a house purchase on a private note then you are not allowed to sell via land contract, lease option, on Balloon. Lease options must only be structured by a straight lease with a straight option and no balloon, seller is not allowed to seller for more than his purchase price but is allowed to cash flow, count monthly rent towards purchase price. To create equity out of the deal.

What is your understanding of these guidelines?

@Manny Cirino

Re your comment

One thing that you didn't touch on and I am sure it is was on strategic. Is the regulation around selling on terms if your buying on terms.

  1. In other words selling via Lease Option, She has explained that if you have a house purchase on a private note then you are not allowed to sell via land contract, lease option, on Balloon. Lease options must only be structured by a straight lease with a straight option and no balloon, seller is not allowed to seller for more than his purchase price but is allowed to cash flow, count monthly rent towards purchase price. To create equity out of the deal.

What is your understanding of these guidelines?

My feeling is if you get the deed on sub 2, buy on sub2 that is, then as an exit..

1. Sell on a wrap, (you own it and you are not living in it, so it is NOO) OR...

2. Lease it with a straight option OR

3. Lease it with a ROFR (Right of First Refusal)

OR

4. Sell it on terms like Owner financing, while going through a RMLO

These are all doable.

When you own it, then sell on terms, the Dodd Frank, SAFE Act, etc.are less involved.

That does not mean you cant be fair and reasonable. SAFE Act and Dodd Frank is about being fair and reasonable, as is the IRS regulations as per what a disguised installment sale looks like.

If you buy on a note, like a free and clear home, and you are leasing it, and as an exit you can give a straight option with the lease without rent credits or a ROFR, you're fine.

But you cant buy on a note and sell on a wrap, or contract for deed easily with Dodd Frank or the Safe Act.

As is the mess with Mobile Homes, Lonnie Deals, I would defer to John Fedro

- see this awesome youtube w Josh. https://www.youtube.com/watch?v=WEVe6JDfpNk

And this article http://www.mobilehomeinvesting.net/mobile-home-blog/2014-safe-act-and-dodd-frank-for-mobile-home-investors

Can you Manny explain this...

seller is not allowed to seller for more than his purchase price but is allowed to cash flow, count monthly rent towards purchase price. To create equity out of the deal.


And @Bill Gulley please add to this.

Hi @Brian Gibbons

Really enjoyed your chapter of the book--looking forward to reading the rest of it! I am just curious...are you really finding sellers who will sell at 105% of comps at 4..5...6% interest? Free and clear houses, that is?

I am 23. No bank will lend to me because 1) Fannie's lending requirements have been shot for investment properties as of late and 2) I just recently started my full-time job, so I do not have the 3 years of tax returns that portfolio lenders are looking for.

I make $50,000+ a year, have no debt, a great, stable job and nobody will lend to me. So seller financing looks like a great option for me. However, not at prices where individuals want 130% of market comps, 30% down, and 12% interest on 2/30 terms. The numbers just don't make sense that way.

Would appreciate you (and any others) words of wisdom! Thanks again.

Manny, that might be true in FA, it's not elsewhere, as to a seller's note and deed of trust and then selling Sub-2, unless that is specific in FA state law, It's not the norm, it's too convoluted to go through it as a lease-option as you can only collect on your equity, but it can be done, at least here. No to a CFD due to other reasons.

Dodd-Frank does not cover subsequent sales after a seller financed note, if you think it does, it's possible I missed it, doubt it, but get the para # to the DF or post it up. I'd say that's more disinformation.

Interests in installment contracts are covered under the UCC, federal law.

Manny, any credit of any kind toward a purchase price is a financing arrangement, if it's to an owner occupant DF applies. That includes "rent credits"!

An option price may not be financed if DF applies, obviously any balloon payment or delayed payment is financing. Collect the option price and just have the option expire.

Brian, who the heck is John Fedro, did you find another guru? Mobile homes, I'd say not to listen to anyone on the internet except @Ken Rishel

When you own it DF gets less complicated...wow, if you are "in the business of" or a non-occupant, that's when the DF issues kick in.

All of this has been hashed out hundreds of times on BP.

Hi @Bill Gulley

@John Fedro is a successful MH Investor, and I included links from @Joshua Dorkin s interview with him.

I enjoy his materials.

GURU?

Nah, really nice guy tho. He helps alot of people.

After all BP is...Anti Guru...

Originally posted by @Brian Gibbons :
Hi @Bill Gulley

@John Fedro is a successful MH Investor, and I included links from @Joshua Dorkin s interview with him.

I enjoy his materials.

GURU?

Nah, really nice guy tho. He helps alot of people.

After all BP is...Anti Guru...

I found him after I posted, I tried to edit but couldn't having issues again on site. :)

Originally posted by @Clay Manship :
Hi @Brian Gibbons

Really enjoyed your chapter of the book--looking forward to reading the rest of it! I am just curious...are you really finding sellers who will sell at 105% of comps at 4..5...6% interest? Free and clear houses, that is?

I am 23. No bank will lend to me because 1) Fannie's lending requirements have been shot for investment properties as of late and 2) I just recently started my full-time job, so I do not have the 3 years of tax returns that portfolio lenders are looking for.

I make $50,000+ a year, have no debt, a great, stable job and nobody will lend to me. So seller financing looks like a great option for me. However, not at prices where individuals want 130% of market comps, 30% down, and 12% interest on 2/30 terms. The numbers just don't make sense that way.

Would appreciate you (and any others) words of wisdom! Thanks again.

Here is my audio response....

http://reiskills.evsuite.com/bp-sellerfinancing-23yearold-indiana/

Let me know if that helps!

Brian

Brain, Bill,

sorry for that I crossed my facts a bit on the last portions. I was pertains more torwards actually buyer regulations vs selling as an actuall owners. We have went over DF 100 times and I am sure it will be another 100. It simpler to just get a good MLO and let them do what they do best.

Manny, the D-F is written by finance types for finance types and attorneys who practice in areas of banking and compliance. There are phrases and terms that can be read that won't carry the intended meaning, someone could read the Act a 1,000 times and not catch the details or meanings. I'd have issues trying to read about oil production matters, it's out of my area of expertise. :)

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