Seller Financing - Clarification please and thank you...

[Bajic]

Hello All,



I was wondering if there are any seasoned and/or new investors out there that can clarify my question that I had in regards to seller financing.



I had spoken with an owner who wanted to sell their investment property and was open in doing seller financing. Lets just say that her investment property is worth about $200,000. She has a mortgage balance of $100,000. If I were to put down 20% down of the property ( $40,000.00), that would leave the owner in holding $160,000.00, and about $60,000.00 in equity. The seller's term is over in October of this year. Now my question is, the owner is looking to get the rest of their equity in about a year.



(a) Provided that this investment is financially sound and I would still be able to cashflow, how does the owner get the rest of her equity after the year is over?



(b) Is it normal for a seller to hold a mortgage for only a year? Or is there an ideal number of years/months for a seller to hold the mortgage for me?



(c) If I am making the monthly mortgage payments for the seller, this would have a mortgage pay down. Now wouldn't it not pay down the mortgage of the seller granting more in equity for the seller, increasing their equity from $60,000+?



(d) Are there any other options for me to strategically negotiate with the seller? From the sound of it, they do not sound motivated at all to sell. But if they are opt in selling their investment property in different ways, would it not show a little sign of motivation?



Please correct me if my thought process is wrong. But what I was thinking in part



a) I have to eventually qualify for the mortgage when the year is over, to pay the remaining balance of the mortgage and cash out the seller. (e) But what I have to ask in regards to this is, when I qualify for this mortgage, do I still have to put a down payment? I already had paid the seller 20% down for holding the mortgage for me.



As for questions (b), (c), (d) and (e) I have no answer to this.



My intention would be to assign this to another investor for a small fee. Would this be financially sound?



If there are any seasoned and/or new investors that would kindly help clarify these questions I would greatly appreciate it!





Sincerely Yours,



Newbie

 

[Thomas Beyer]

In life you don't get what you deserve, you get what you negotiate. Seller financing terms are not standard, thus be creative to find a win/win that works for you and seller. In your case, an Agreement for Sale (AfS) is the way to go. You pay him $40,000 now, and X $s a month (say 3% on $160,000 = $4800 or $400 a month interest plux $600, so $1000 a month) from which she pays the mortgage. In a year you pay her the remaining $148,000 from which she discharges her mortgage.



However, if you have an unmotivated seller, you may wish to buy something else. Some seller motivation is critical for any astute buyer.

 

[BHoward]

If a seller will entice you w seller financing for 1 year ... They will probably give it for 3 years and even 5 years. Do you expect the market to increase sufficiently in 1 year?

 

[Bajic]

[quote user=ThomasBeyer]In life you don't get what you deserve, you get what you negotiate. Seller financing terms are not standard, thus be creative to find a win/win that works for you and seller. In your case, an Agreement for Sale (AfS) is the way to go. You pay him $40,000 now, and X $s a month (say 3% on $160,000 = $4800 or $400 a month interest plux $600, so $1000 a month) from which she pays the mortgage. In a year you pay her the remaining $148,000 from which she discharges her mortgage.




However, if you have an unmotivated seller, you may wish to buy something else. Some seller motivation is critical for any astute buyer.





I can actually pay the $148,000? I am assuming its $160,000 - $12,000 (monthly payment for the year). And its not going to be the mortgage paydown balance? (If I make any sense...?)



As after the end of the year Thomas, I eventually have to qualify for a new mortgage right? Also, do I have to put the 5% down on the new mortgage? But I paid the seller 20% down already?

 

[Bajic]

[quote user=BHoward]If a seller will entice you w seller financing for 1 year ... They will probably give it for 3 years and even 5 years. Do you expect the market to increase sufficiently in 1 year?





Well my intention was to assign it to another investor. It is currently located in the town of Hamilton. So I know it will appreciate steadily. Not only that, but I had done my research for fair market rent and it seems that it will cash-flow moderately.



I just wanted to know your opinion as a seasoned real estate investor if having a deal structured to hold a mortgage for about a year, would this be beneficial to other investors? I do not know myself because I have not done this myself. Just wanted to know the opinions of others.



Thanks

 

[Thomas Beyer]

Familiarize yourself with AfS, please. You agree today to buy in the future at some price. Between now and the actual purchase date you pay the seller a certain amount per month that usually exceeds his mortgage payment, so he can pay the mortgage. You pay everything else, like taxes, utilities, ..



You do not yet own the house, only at the agreed upon time. Hence the term: agreement FOR sale. Then you have to get a new mortgage for at least as high as the outstanding balance owed to seller. Your interest in the property is secured via caveat on title, like a second mortgage.



You have to understand it first, have a lawyer that understands it, and then explain it to the seller.



Assignments are risky, especially with a property you do not yet own. A very senior strategy. Not recommended until the 4th or 5th property.

 

[kir]

[quote user=ThomasBeyer]In life you don't get what you deserve, you get what you negotiate.























Nice quote!!,



Kir.