The Creative Financing Podcast
Business:Investing
In this series we talk about understanding creative financing, the strategies used, and the pro’s and con’s of each. Here are the different strategies and how they pertain to the following …
Title Transfer
Foreclosure
Taxes
Due on Sale Clause
Maintenance and Repairs,
Closing and Transfer tax
We use an example of a property with 4 single family homes on one lot. It needs about 60K in repairs, the seller is asking 110K and owns it free and clear. It can rent for 2400/month with an estimated expense of 800/month, which leaves 1600 in monthly cash flow. We can offer the Seller 750/month principle only. Now with the amount needed in repairs we need to get in light, say 5K, then refinance the property as soon as possible after repairs are complete, in order to recapture our capital. So what strategy do we use? We would just use a 1st position trust deed and note because it's free and clear.
Now Let's say there is a debt of 40K with 550/month payment. Then what? Well we can still offer 750/month, with wrapping their exact loan terms and offer 200 in principal only payments on a second note for the balance of their equity. This is where we would use an All inclusive trust deed and note or wrap around mortgage as our strategy.
Wrap Around Mortgage: 1 Note Example: Property info- SFH with ARV of $250K. Owes 57K. Payment 635/m PITI. Rented for $675. Could rent for 1400/month. Needs 25K in repairs. Cash offer at $165K.
Offered 180K PP. 9K down. New note $171K @ 2.5% 850/m principle and interest. Term 3.5 years. Balloon 149,351.
Wholesale to a landlord for $201K with $30K down.
Wrap Around Mortgage: 2 Notes Example: Create 1 note for exact terms of the existing note on the property. So 57K principle, same interest rate and term with same amortization schedule.
Second note- 114K principle with 225/month principal only payments for 42 months. Balloon of 104,550 on second note.
Subject To Deals- 3 Rules to abide by.
Subject To: Example 1. SFH 3bed 2 bath 1200sqft. Needs a roof and updating. 848/m PITI Owes 62K. ARV $165K. The Seller wants 70K for the property. The seller has 2 notes, 47K on one, and 15K on the second. Seller is behind on payments by about 4K.
Buy for 70K. Reinstate the first mortgage, try to discount the second and pay off. Then sell on the market for
Subject To: Example 2. SFH 2400sqft. 4bed 2.5 bath, built 2002. Owes 290K. Monthly payment 2500 PITI. Wants $425K. Worth $515K. The HOA will not allow rentals and will not let the property be owned by any business entity. They won’t issue an approval letter to the title company.
Offered $400K. Buying Subject To. Will bring in about 110K as a down payment to pay off the Seller’s equity. Take over monthly payments, make minor repairs and place property on the market. This is a good option when you have unfavorable hard money terms.
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