The Seller Carry-Back Solution

seller-financing

So now you have made years of payments to your mortgage and slow steady appreciation of the market has improved housing prices.  But a recent layoff has just caused a sudden job loss.  The severance being offered will only last a few short months.  A review of personal finances reveals that the house payments that the job supported will be almost impossible to carry through the transition from your outgoing job to a new one.  So you make the decision to downsize your lifestyle till you get solid footing with a new job.  However after you put the house up for sale you notice the offers are well below your asking price.  This is where selling TERMS through a Seller Carry-Back could make the difference between selling your home and not at all!  This is a real scenario:

Selling Price = $400,000

Bank Loan = $150,000

Seller’s Equity = $250,000

You up one morning to find an email from a local builder that believes the house has tons of potential.  Their plan is to add square footage and remodel the kitchen and bathrooms based on the pictures in your listing.  But the buyer thinks the price is too high.  Additionally the builder already has multiple projects in process and cannot borrow all of the funds he would need to finance the purchase and remodeling.  What can you do?  Offer TERMS.  Here is how this recent sale took place.  A seller made an offer to the builder buyer, so that, if the builder would pay the $400,000 asking price, the seller would offer a promissory note of $250,000 with no interest and no payments for the amount of the Seller’s Equity till the builder completed the remodel and sold the house.  The builder would assume the payments on the sellers existing $150,000 Bank Loan.  The builder took the deal and opened escrow.  With the house payments being assumed by the builder, the seller could breathe a sigh of relief.  The whole project would last six months, and resulted in the creation of a newly remodeled home that sold for over $730,000!  The seller closed with the builder for the $400,000.   The builder paid back the $250,000 promissory note (the house equity) and the $150,000 Bank loan when he sold the house to a couple that was looking for a new home in that neighborhood.   By selling the house with TERMS the seller created several opportunities:

  1. The seller was able to sell the house for $400,000.
  2. The buyer builder did not have to qualify or apply for a $400,000 loan to buy the house.
  3. The builder assumed the monthly payments on the Bank Loan.
  4. The builder was obligated to a “Promissory Note” for the seller’s equity ($250,000) with No interest and No payments till he finished and sold the house.
  5. The builder only had to obtain a construction loan for  $125,000 to remodel the house to improve the property.  This reduced the builders out of pocket borrowing costs and reduced the amount of leverage he would need to re-sell the house.
  6. The buyer builder made a profit in the tens of thousands of dollars by only borrowing $125,000 using a seller-financing and a seller carry-back strategy, instead of borrowing the entire $525,000 to achieve the same sales price of $730,000!

This deal is an example of a complete WIN-WIN for both buyer and seller and solved the problem for each party involved!

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Bathroom Remodeling Tips

bathroom

I thought this was a great read.  Bathrooms show a potential buyer/tenant how serious a seller/landlord is about quality.  My favorite remodeling projects include enough resources for kitchens and bathrooms and can make the difference between a house and a home.  Read here—>http://styledstagedsold.blogs.realtor.org/2016/11/14/home-trends-to-watch-the-free-standing-tub/#sf43720767

Bright Kitchens are In!

Photo by Amy Bartlam. Design by Veneer Designs.

I stumbled on this kitchen from Veneer Designs – it’s this fabulous home in Playa Vista that is such a classic boho Southern California style. The best part of this kitchen is the antique rug. It adds such a bright spot to this bright white kitchen.  Read on —>

Bright Kitchen

(Maybe)The Biggest Real Estate Bubble?

bubble

Chinese billionaire Wang Jianlin made his fortune in the country’s real estate market — and now he’s warning that it’s spiraling out of control.

It’s the “biggest bubble in history,” he told CNNMoney in an exclusive interview Wednesday.    Bubble is a sensitive word in China after the dramatic rise and spectacular crash in the country’s stock market last year, which wiped out the savings of millions of small investors who thought Beijing wouldn’t allow the market to drop.   After struggling to contain the fallout from the stock market debacle, China’s leaders could face a similar headache in the real estate sector.  READ MORE HERE—>

http://money.cnn.com/2016/09/28/investing/china-wang-jianlin-real-estate-bubble/index.html?sr=twCNN092916china-wang-jianlin-real-estate-bubble0335AMVODtopPhoto&linkId=29325063

Lower Rents Ahead?

Renters may soon get some relief. In the third quarter, apartment rents in some of the most expensive markets in the U.S. showed a decline. This marks a notable turn from the six-year boom streak occurring in the rental market, according to a new report released by MPF Research, an apartment tracker firm. MPF says a flood of new units hitting the market is one main reason behind the slowing of rents in some high-priced markets.  http://realtormag.realtor.org/daily-news/2016/10/06/rental-market-shows-signs-cooling#sf38067327

 

Would You Make this Purchase???

Everyone wants to own a home.  But if you don’t BUY RIGHT Home ownership can be blinding!!!   I don’t know WHO advised the buyer of this deal recently.  Take a closer look at the deal points:

3 Bedrooms, 2 bathrooms, purchased recently for $500K.  The median house price for this zip code is $450K.  This house is not remodeled and has an ugly old kitchen.  Good bones, but there is nothing new about the house.  Another words this house is already over median.

The buyer put down 5%.  Financed the balance so they now owe PMI (personal mortgage insurance).  Property tax will be 1% of purchase price in LA, so $5000 per year with 2% increases annually.

Since the borrower opted for a 30 year mortgage and put a minimum down payment into the deal, they were assessed an additional 0.85% charge.  The APR of 3.13% with the assessed addition is now 3.98%.  This all looks great, right?

The buyer believes the house will appreciate 5% for the next 3 years, to $578.8K.  That’ a whopping $78K PROFIT RIGHT???  WATCH THIS:

Borrowed Amount: $475K

Down:  $25K

Interest to be Paid in 3 Years:  $55.2K

Property Tax to be paid in 3 Years: $15.3K

Property Insurance to be paid in 3 Years:  $1K

Total Paid by Buyer in 3 Years:  $71K

The buyer after 3 years has put $571K into the house, even though they paid down part of the loan, they have still effectively PAID $571K.  How much profit?  $7.8K hopefully.  WHY?  because the buyer assumed a 5% increase for 3 straight years.

If the buyer is wrong in 1 out of the 3 years the profit is….ZERO!!!

So again I ask, would you have made this purchase???

BUYING REAL ESTATE WITH A BUDDY? CONSIDER THIS…

Combining resources to acquire real estate sounds great, till you really consider ALL the considerations.  I still meet investors who don’t use operating agreements with their partner/friends when flipping homes.  This article addresses the “what if’s” in a practical sense.Buying Real Estate with a Buddybuying-re-with-a-buddy