What is and how do you use your best argument used in convincing sellers to carry financing?
Apr 30, 2009 Tell Me How
Actually, I have two favorite arguments to sway sellers to think like I do. I appeal to their common sense with both arguments.
1. I primarily look for motivated sellers who cannot cash out. They’ve listed their properties with real estate agents with no success. In most cases, they haven’t even had one showing. These sellers haven’t the foggiest idea of what seller financing is all about. What they do know is that buyers don’t pay and most buyers want 30 year financing. They have heard of balloon payments, and this is truly a seller’s advantage.
2. I begin negotiating through the agent, or directly with the seller, by talking about a quick payoff. This immediately gets everyone’s attention. They immediately begin entertaining ideas of balloon payments. They want to think about it and will call me later.
When we speak again, they express interest of a balloon payment. I say nothing. They continue with a possible 3 or 5 year balloon payment. (I know at this moment that I got the deal.) I state, “No. That’s not what I meant. I meant that I would pay you off real quick.” They ask, “What do you mean?” I reply, “I mean that I will pay you out in 8 years. I’ll make bigger payments and pay you off in that time.” Somehow the eight year payout is exactly what strikes their interest and the deal is made.
Tags: Seller Financing
What Is A Purchase Money Mortgage And How Do You Use One?
Apr 20, 2009 Tell Me How
A Purchase Money Mortgage is where the seller:
1. Is a private individual.
2. Has the property paid off, gives a 1st mortgage, conveying the deed.
A Purchase Money Mortgage Assumption is one where you assume a P.M.M. that you had no part in originating.
States vary on the assumption aspect.
For example:
In Ohio
If it says it is assumable, it is.
If it says it is not assumable, it isn’t.
If it says nothing about it, it is.
In Oregon
If it says it is assumable, it is.
If it says it is not assumable, it isn’t.
If it says nothing about it, it isn’t.
Purchase Money Mortgages are used when buyers and sellers want to use seller financing to consummate the deal. Buyers similar to me like it because they can enjoy purchasing property without going to the bank and jumping through hoops with a bag of money. Also, the interest rate and the down payment are dictated by the buyer and seller. Furthermore, buyers are not exposed to all of those ridiculous inspections, fees, and closing costs. Sellers like it for the quick sale. In addition, rather than paying income taxes on a huge amount of income, sellers essentially income average. In other words, sellers only pay taxes on income receive that year, rather on the whole amount. In fact, in many cases taxes aren’t even paid on the entire amount collected during the year.
The Installment Sale Income, Form 6252
Midway down the form you’ll find the GROSS PROFIT PERCENTAGE (G.P.P.). This is the percentage amount of the principle that you will pay taxes on.
For Example.
If the G.P.P. is 50% and you’ve collected $10,000 that year on the principle, then $5,000 is tax free!
The other $5,000 reaches the front of your return and is added to your income.
Investors who retire from real estate have only one logical choice: The Installment Sale Method.
Investors like me who enjoy income from notes, Fast-Flip®, and who want to avoid taxes have two choices: 1031 Tax Free Exchange & Installment Sale Method. All other sales involve heavy tax burdens. Unless and until the capital gains tax is rectified, Installment Sales Income is the best game in town! The Purchase Money Mortgage is sweet for the seller, and sweet for the buyer.
Tags: PMM, Purchase Money Mortgage
How Do You Get Sellers To Take Only $1 With The Option Contract?
Apr 13, 2009 Tell Me How
Not a week passes when at least one investor doesn’t question the difficulty of writing up an option contract. They don’t understand why sellers would take such a ridiculous amount to tie up their properties. Simply, it’s standard in my contract and I don’t make an issue of it. Once the seller agrees to the option, you take out the contract and fill out the particulars of date, seller and optionee’s names, address of property, price, and term. You put the contract in front of them and they look for what they get and how long your option is for. You point out at the top that the one dollar is to make the contract binding and enforceable. They’re not going to back out now. It’s feasible to consider that you tell someone in your initial contact that you want the option for one dollar and they’d tell you to get lost. Perhaps that is what causes the confusion. In this case: Timing is everything. You want to make this disclosure at the very end, after they’re sold on your service!
What Is A Land Sales Contract And When And How Do You Use One?
Apr 13, 2009 Tell Me How
A Land Sales Contract (L.S.C.) is used by many investors when they do not have an assumable loan and they want to provide financing. This is the wrong way to use a L.S.C.
Here’s how that works:
1. The seller keeps the deed.
2. The seller and buyer into a L.S.C. where the buyer takes over as owner and makes a payment to the seller, keeping the seller still liable on the mortgage.
Problems:
1. If you file the L.S.C., which protects the buyer, the mortgage company could find out and call the note (foreclose).
2. If your buyer obtains insurance and you (the seller) cancel yours. The mortgage company is essentially alerted and could check the courthouse for any filings.
3. If the payment is made by the buyer to the financial institution, the mortgage company is again alerted.
4. If the buyer pays the seller and the seller doesn’t pay the mortgage, it could be a serious problem.
5. If the L.S.C. isn’t filed, the seller could obtain liens and mortgages on the property without the buyers permission or knowledge. This is real bad for the buyers.
6. If you have a fire at the property and the seller has the insurance, you could be out of the loop. If you are the one on the L.S.C. and you carry insurance you must list your seller as the mortgage holder. The insurance company will make out the check to you and your seller. The seller won’t like endorsing the check and getting nothing for it.
7. If you buy L.S.C. and your seller files bankruptcy, it is a serious problem.
8. When you go to sell, the deed holder may need to sign something. You will need to find them and they need to sign. That could be two different problems. The right way to use a Land Sales Contract is one where the seller is allowed to enter into the agreement. This can be done when the property is paid off or when there is an assumable loan. Under these circumstances, there is no cause to configure the L.S.C. to accommodate concealment from the bank fearing foreclosure, against your wishes. Myself, I find my conservative views surfacing most when it comes to L.S.C.’s and balloons. I am adamantly opposed into buying under either situation. When selling, I like them both. My every waking moment is spent eliminating drawbacks and making a better investing atmosphere for myself. I do everything I can to be as risk-free as I possibly can. If I could buy from a seller who I really trusted, and it was paid off or assumable, it wouldn’t really be an issue. In the real world, you just can’t outright trust investors you don’t even know. Should you decide to go ahead with becoming a buyer under L.S.C. circumstances, I would at least insure that the contract is allowable by the lender. When I have a property paid off, I decide between a Purchase Money Mortgage and a Land Sales Contract based upon the equity and the buyers’ financial status.
For example:
If I have a large equity, I prefer a L.S.C. because foreclosing is easier.
If I have a real strong buyer, I prefer getting rid of the deed.
Tags: Land Sales Contract
