All Forum Posts by: Ryan H.

THIS MAY NOT BE RELIED UPON AS LEGAL ADVICE.

@Cody Z.  NJ attorney here.  (Disclaimer:  I am an attorney, but I am not YOUR attorney.  This is not legal advice.)  I think the issues boils down to: (a) what is the individual's relationship to the property, and (b) what exactly is the individual marketing for sale?

First let's cover the two black and white scenarios, then we will get to the gray area:

Scenario 1.  If an individual owns a property, they have an absolute right to market that property for sale without the involvement of a licensed real estate broker (i.e., "For Sale By Owner").

Scenario 2.  If an individual does not own the property, they may not market someone else's property for sale unless they are a licensed real estate broker.

Now the "gray" area of wholesaling:

Scenario 3.  If a wholesaler (who is not, also, a licensed real estate broker) has a property under contract, they may (arguably) market for sale their contract (i.e., their right to buy the property upon certain terms), but they may not market the "property" for sale, generally.

The nuance exists in what the wholesaler owns (a contractual right to buy vs. the actual property) and what they are marketing for sale (the contractual right to buy vs. the actual property).

It's a fine line.

THIS MAY NOT BE RELIED UPON AS LEGAL ADVICE.

@Peter Kraft I will message you. 

@Peter Kraft that information from NJMLS is not accurate.  It's a 3 bed/2 bath.  1,500 square feet.  I suspect the complicated history of the property may account for the inaccurate information listed on NJMLS.

The property was used by members of the same family as a two family -- under a temporary certificate of occupancy permitting the two family use -- for more than 30 years.  However, because it was only ever a temporary use, and the zoning subsequently changed to no longer allow two families, the temporary use is not "grandfathered."  The end result, is that the property can only be legally used as a single family going forward.  This issue was discussed extensively with the town zoning official; there is zero chance of resurrecting the two family use (short of spending lots of money on lawyers and obtaining a use variance from the zoning board).

This deal had many other complications that I since cleared up.  First, there was a complicated estate issue which needed to be resolved before the sale could close.  Then there were back taxes that needed to be paid.  Then there were open permits that needed to be resolved and closed before a continuing certificate of occupancy could be issued.  Then there was an underground oil tank that needed to be removed.

It took a lot of work and many months to clear all the hurdles and close on the property.  Now it's got a totally clean "bill of health."  No title issues.  No back taxes.  No open permits.  No oil tank in the ground.  All proper permits and sign-offs issued and obtained.

As I mentioned in my original post, I would flip this one myself, but for an unexpected change in my personal circumstances.  This will be a very profitable deal for someone.

Bergen County, NJ -- Amazing Flip Deal -- $58,625 Potential Profit

3bd/2ba, 1500sqft, Large Property

Buy: 325K

Rehab: 80K

ARV: 500K

--Details of Flip--

$325,000 Buy

$80,000 Rehab

$6,800 Carry

$411,800 Total Cost

--------------------

$500,000 Sell

($25,000) Realtor Fees

($4,9575) Closing Costs

$470,425 Total Sale Proceeds

--------------------

$58,625 Total Profit

14.24% Return on Investment

If anyone is looking for a flip deal in Bergen County I just posted a great one in the Marketplace for a 3/2 in Midland Park, NJ 07432.  I actually own the property (i.e., this is not a "wholesale" where I am trying to assign a purchase contract).  I was going to do the rehab myself, but my personal circumstances recently changed.  There is good profit in this deal for a north jersey rehabber.

Bergen County, NJ -- Amazing Flip Deal -- $58,625 Potential Profit

3bd/2ba, 1500sqft, Large Property

Buy: 325K

Rehab: 80K

ARV: 500K

--Details of Flip--

$325,000   Buy

$80,000     Rehab

$6,800       Carry

$411,800   Total Cost

--------------------

$500,000   Sell

($25,000)   Realtor Fees

($4,9575)   Closing Costs

$470,425   Total Sale Proceeds

--------------------

$58,625     Total Profit

14.24%      Return on Investment

-------------------- 

NOTE 1: Seller makes no guaranties about the estimated rehab costs or ARV. Buyer should not rely on seller's estimates. Buyer is responsible for conducting their own due diligence and forming their own conclusions as to estimated rehab costs and ARV.

NOTE 2: No realtors please.  Seller does not need assistance selling the property.  Seller is seeking to sell directly to another flipper/rehabber.

NOTE 3: Seller will schedule showings of the property only with document proof of funds.

@Elliot Galpern 

As with many items of tax and legal planning the short answer is: "it depends."  

1.  How will the property be financed?

2.  How many owners will there be?

3.  How many properties are you planning to flip each year?

@David Brown Congrats on the deal!  Once you have a seller that has agreed to provide owner financing, then, as other commenters have stated, it's pretty much just a promissory note (which governs terms of the loan and creates obligation to repay) and mortgage (which secures the loan against the property).  There may be a few other ancillary documents required by NJ law. Your attorney or the title company should be able to draft the documents. 

Will the owner financing be the only loan in the deal?  If there is other financing (e.g., 50% owner financing and 50% hard money lender) you will likely have to address priority of the mortgages (i.e., which loan will be senior and which will be junior) as well as the interplay between the lenders (e.g., will junior lender have any cure rights if you default on senior loan and vice versa).

@David Brown Has the seller already agreed to owner financing and you are wondering about the mechanics?  Or, are you preparing to present an offer to the seller with owner financing as one of the terms and, in essence, you are going to be broaching the topic of owner financing with the seller for the first time?

I would be curious to know how many investors are really purchasing residential real estate deals with owner financing...

The idea of owner financing in the context of a residential property has always seemed to me to be a bit of an urban legend; something promoted by so-called gurus to new investors hoping to get started buying deals with "other people's money" and no capacity to get a loan from a traditional lender.

Let's consider the the most basic version of owner financing:  Buyer agrees to purchase property from seller.  Seller agrees to hold promissory note in the amount of 80% of the purchase price.  The promissory note is secured against the property as collateral by way of mortgage recorded against the deed.  Buyer pays the remaining 20% at closing in cash.  Thereafter, buyer makes payments to seller as set forth in the promissory note.

Here's why I think the foregoing rarely happens in residential deals: 

(A)  It requires a seller who either owns the property outright, has a very small balance on their mortgage, or has a substantial amount of other liquid assets such that they could have already paid off the property.  The only way the seller can agree to owner financing in the example above is if they do not need the proceeds from the sale of the property to pay off the existing mortgage.

(B)  It requires a seller who does not need the proceeds from the sale of the property to fund the purchase of their next property.  Again, if a seller agrees to owner financing, they are agreeing to leave some or all of their proceeds in the deal, by way of loaning the funds to the buyer.  I would imagine that most sellers need to use the proceeds from the sale to either pay off the existing mortgage (discussed above) or to put toward their next home.

(C) It requires a seller sophisticated enough to understand what owner financing means and to appreciate the value of the income stream that will accompany the promissory note.

How many sellers of residential real estate do not need the proceeds from the sale to (a) pay off the existing mortgage, or (b) use toward their next house, and (c) are sophisticated enough to become a lender?  I would say very few.

I could see that owner financing in the context of commercial property may be more likely because it eliminates some or all of the issues I outlined above.

Just my two cents.