Creative Financing from our CEO
When negotiating for high yields - be conservative and always ask for seller financing when making offers to buy - we call it "contract candy", anything the seller can add; all the furniture, car, cash back at settlement, seller financing, a lot he may own, a home warranty - etc (also called "can-adds). Do this often and you will discover the joys of investing and negotiating - and will make a ton of the cash and equity.
When buying and negotiating seller financing - offer a principal mortgage - when doing this, you can offer more for the property since there is NO INTEREST - an important clause in the mortgage is that it should be fully assumable without qualification and that it is a subordinated mortgage (meaning that your owner financed mortgage is in first position and the seller financing becomes a second mortgage and subordinate it to a new first mortgage.) The seller may argue that he wants interest - tell him "it's in there", he can report to IRS any interest he wants - but that's your offer, you are offering more for that benefit - so it should balance. Remember you are making an offer that suits you! The interest you save is great and the mortgage balance will reduce faster.
Some lenders are predators, looking to up their fees, points or whatever, asking for documents, leading you on and turning you down! I've had long experience and understand their transparent tactics. I've gotten along OK, with a minimum of conventional financing.
Your best financing is the Bank of the Seller!, no application, no appraisal cost or JUNK FEE, The seller won't give you money but will let you pay them back on their equity while putting you in a great deal without lots of real money.
Getting the Seller to say YES, "I'll hold a mortgage"
You can ask, "Mr. Seller. I'd like to buy your house, but I need some seller financing!"
Well that's a beginning, but if he says NO, I want cash! The negotiating for seller financing is done.
Test sellers reaction first while in the rapport stage of your negotiating, try to get a verbal commitment before asking for financing.
After a period of negotiating and coming to a tentative agreement of sales price of the building; make the contract (in writing) contingent on the owner holding a mortgage (state the terms, $100,000.00 amortized for 20 years at 6%, P and I of $860.00 a month with a balloon in 60 months in the amount of $XXXX. (add up 60 payments to show seller how much he will receive and the interest he will get)
Showing the seller the benefits of the mortgage will help you get that financing.
PRINCIPAL mortgage (THE BEST), sometimes you can offer more than the seller wants if they agree to give you a principal mortgage. This is a mortgage with no interest, all payments go to liquidate the loan.
Clause: Inconsideration of x dollars, seller agrees to accept a principal mortgage of $100,000 with payments of $1,000 a month until paid in full.
Always make sure your principal mortgage has an assumption clause in it (mortgagee agrees that this mortgage is fully assumable without qualification with release of mortgagor.
I've written some reports on creative financing - it's really a great way to CONTROL real estate using leverage and little or no cash.
Good luck with Seller Financing.
So now when that is arranged and recorded - there are a number of things you can do next - after you refinance - put the seller first in second place - you get cash -- when you are ready to sell you can take some cash, do a wrap on your interest free mortgage and your existing mortgage and charge interest on the money you owe (it doesn't get any better than that - the yield is off the chart). A wrap is a mortgage that wraps around the existing financing. And don't forget - if you want to sell your WRAP at a discount - WOW - more cash in hand.
Oh - you may want to consider an unsecured mortgage or secure the seller financed mortgage on another property you own, now you have a free and clear property ---- just think what you can do with that.
One more thing I should mention while we are being financial creative - when you get a new mortgage on the property, offer the seller a PAY-OFF at a reasonable deep discount - you win again!
I knew an agent from NJ, when ever a property was reported as sold from the MLS - he would search the records to see if there was a mortgage that had to be satisfied at settlement (seller financing mortgage is much easier to deal with) - he would run the mortgagee and negotiate an option for $100 to buy it at a discount - record his option and wait for settlement - guess what, if he was clever enough to negotiate a discount he could get a check for $5, 10,000 or more within 30-45 days. If the property doesn't settle, he does not exercise his option and he is out $100.00 ---- Wow!
Hope these ideas were helpful ---- Charlie
https://www.biggerpockets.com/users/parrish23 - Bigger Pockets
https://investorsunited.com/ - Investors United School for Real Estate Investing