- Joined
- Aug 22, 2007
- Messages
- 304
I’ve been fielding a lot of questions from REIN members who are running into low equity or no equity Agreement for Sale (AFS) situations.
While I cover this in quite a lot of detail in my ‘Deal-Ready Documents’ Focus Workshop, here is an abbreviated comment that should help...
Explaining the agreement for sale concept and particularly the `unpaid seller’s equity`, was proving difficult. What sellers were able to understand more easily was that the REIN member was `taking over their mortgage` (which you are not, you are definitely not assuming their mortgage), and maybe paying them a little cash down the line.
So, for low equity, no equity situations we have come up with a new AFS Financing Schedule. It helps the seller understand the financial details by repeating those financial details from the real estate purchase contract. Then, it splits the unpaid seller’s equity into the seller’s underlying mortgage and the cash portion.
Please note that this form sets this up with a payment exactly equal to the seller’s underlying mortgage payment. Then, it shows the cash portion at 0% interest, no payments and with a one balloon payment for the whole cash portion when the term of the AFS matures.
I think you all know that you can have any kind of financial terms that you want. The cash portion could have interest rates and payments but it seems like this is the simplest way is to give you a form to work with for the low equity, no equity situations. Now, you have two AFS financing schedules. One for the ‘classic’ situation (this one is in ‘Critical Forms’ under ‘Quick Turn Real Estate Forms’) where the seller has lots of equity and he wants regular principal and interest payments usually paid monthly. A second one for the low equity, no equity situation where the seller is really just worried about the last little bit of cash and needs to see more practically and simply exactly where that cash is in the deal.
For more great forms, coaching and info just like this, please consider attending my ‘Deal-Ready Documents’ Focus Workshop this Saturday, January 30th in Red Deer. We have just a few spots left, and I’d love to fill it!
Hope this works for you,
Barry
While I cover this in quite a lot of detail in my ‘Deal-Ready Documents’ Focus Workshop, here is an abbreviated comment that should help...
Explaining the agreement for sale concept and particularly the `unpaid seller’s equity`, was proving difficult. What sellers were able to understand more easily was that the REIN member was `taking over their mortgage` (which you are not, you are definitely not assuming their mortgage), and maybe paying them a little cash down the line.
So, for low equity, no equity situations we have come up with a new AFS Financing Schedule. It helps the seller understand the financial details by repeating those financial details from the real estate purchase contract. Then, it splits the unpaid seller’s equity into the seller’s underlying mortgage and the cash portion.
Please note that this form sets this up with a payment exactly equal to the seller’s underlying mortgage payment. Then, it shows the cash portion at 0% interest, no payments and with a one balloon payment for the whole cash portion when the term of the AFS matures.
I think you all know that you can have any kind of financial terms that you want. The cash portion could have interest rates and payments but it seems like this is the simplest way is to give you a form to work with for the low equity, no equity situations. Now, you have two AFS financing schedules. One for the ‘classic’ situation (this one is in ‘Critical Forms’ under ‘Quick Turn Real Estate Forms’) where the seller has lots of equity and he wants regular principal and interest payments usually paid monthly. A second one for the low equity, no equity situation where the seller is really just worried about the last little bit of cash and needs to see more practically and simply exactly where that cash is in the deal.
For more great forms, coaching and info just like this, please consider attending my ‘Deal-Ready Documents’ Focus Workshop this Saturday, January 30th in Red Deer. We have just a few spots left, and I’d love to fill it!
Hope this works for you,
Barry
