All Forum Posts by: Nick Noon

Good morning BP.

I have a question on how to structure a owner finance deal. My companies strategy is to BRRRR multi family units so that we can pull our capital out of the properties within 6 months after we rehab and refinance them. It is important for us to pull our money out so we can achieve our goal of the amount of rental units we want to own.

We met with a realtor yesterday who said she knew an investor trying to unload his portfolio.  There were 2 units that the RE agent wanted us to look at from this seller.  The units were turnkey per say so I told her the only way we could buy them is if the seller would owner finance them so that we weren't tying up a lot of capital.  The RE agent said that the seller might be interested in a owner finance deal. 

We looked at both properties yesterday and we want to wrap them both up and get them under contract.  Here are the terms I offered:

20% carryback financing @ 5% interest, interest only payments, with a balloon payment after 5 years.  Also an option to extend the owner financing after the 5 years if mutually agreed to.  I've read a few books on owner financing, but don't have a lot of experience doing it so I was sort of shooting from the hip when I offered the terms.  I'm not sure how much equity the seller has in the property, but I did offer that we would be willing to allow more owner financing in the deal if it allowed. 

I would appreciate any feedback on the terms I offered or any suggestions on how to structure the deal.  Also, what happens if I refinance early?  Is there a penalty if I pay the seller off early?  I am assuming I would have my title company/attorney draw up all the paperwork and record the promissory note.  Do I do a land contract or get a mortgage/deed of trust?

I am very new at owner finance and how to negotiate the deal so I would appreciate any insight.  I can provide more details if necessary

Thanks in advance!

Those are some good looking goals there Brian.  

My goals this year are to flip at least one property and do a BRRRR strategy buy and hold property by the end of the year. I spent all of last year taking a 1920's house and adding over $100k in value in 8 short months. I was able to get rid of my PMI as I proved to have 20% equity in a house that I only paid 3.5% down for in just 8 months. I am now looking to parlay some of that equity into funding these properties. My credit union will allow up to 95% LTV on a home equity loan so that would be my strategy.

Looking forward to the year to come.  I wish you a very successful year and maybe we can connect down the road and help each other achieve our goals.   My long term goal is 100 units in 10 years.  

@Greg Kendall

Welcome Greg. A lot of great stuff on here. I have just finished my live-in flip and will be looking to BRRRR multi family properties in the North Boston/Southern NH area as well. Possibly a couple flips along the way as well.

@Sarah D.

Thanks!

@Albert Bui

Yes, the appraisal was part of the refinance I am doing which proved that I did have at least 20% equity in the house. I am reducing my payment by $201/month getting rid of the PMI. I well then take out a equity loan after I close on that loan.

@Natalie Kolodij

The quick answer is Yes, you need a GC.  You are typically not allowed to do the work yourself, or even a relative for that matter. 

I don't want to go into too much detail, but as far as everyone is concerned all the payments went to my GC and paid for the work.  The bank now has a property with a substantial amount of equity which makes their investment that much safer...win-win. 

:-)

@Torin Murphin

Hahah.  It is was very difficult to try and get it all done.  Our lease was up at our apartment and we had to move in when the house was half done and she was not very happy with me hahah.  After we were done she did use the phrase "Never again".  Good thing she has a short term memory.....

This is what it looked like when we moved in.  Yes there are couches buried underneath all of that stuff.  There was a good solid month where all of our stuff was piled in the house with no place to go.  I thought we were going to be on that show Hoarders!  It was fun trying to to trim, crown molding, and paint with all of our stuff in the way....  But again, it's put us in a place where we can start looking at investment properties

@Account Closed

The 203(k) loan part was probably the biggest struggle.  There is a lot of paperwork involved, but I was actually able to get everything done within 30 days.  I was told it was the fastest they've ever seen a 203(k) loan close.  You just got to be prompt to get a quote from GC and all other paperwork and get it in quick.  

I ended up doing a streamline loan because the renovation was under $35,000, which means they gave me half the money up front and half the money when it was done.  Only a final inspection was needed for this.  The full blown 203(k) loan is a little different and requires multiple inspections.

My buddy owns a construction company who was the GC and had him write me a quote for the value I needed.  

@Tamara Taylor

The appraisal was a guy by the name of James Hamilton, who was hired by the mortgage company.  I was funny because he actually did the appraisal for when I bought the home, he did the appraisal for the 203(k) loan, and he did the appraisal for the refinance.  So he saw this house from start to finish and had a benchmark of how much work had been done.

Agree with others.  Get your credit score up.  I messed up my credit pretty bad when I was in college, and it took a while to get it back.  I ended up calling all of my negative accounts and asked them to remove the derogatory item completely from my report if I paid them in full.  I was able to get a lot of them to do it.  I had to call some every day for months because they would keep telling me it was impossible, but you just need to talk to the right person.  Keep working on your credit and it will keep going on. 

Also, I know if you have any judgements on your credit report such as credit card companies that took you to court and won and went into collection, you typically will be automatically disqualified from getting a mortgage.  To get rid of those, you will have to call up the creditor and settle the account.  You can usually do this for pennies on the dollar.  They won't necessarily remove it from your credit report, but they will report it as "satisfied" instead of having a judgement.

Keep working on it and don't let it bring you down.