Real Estate Note Creative Real
Estate Financing
Technique #14...
Create
a real estate note; sell for cash. Assume you locate a property that is on the market for $50,000, and it has an existing $40,000 assumable
mortgage.
The seller's equity is $10,000, which is the down payment required to buy the property. The property has been on the market for four or five months without
selling, and the owner is getting anxious. Offer the seller $6,000 cash contingent upon being able to locate a new second mortgage. If the seller accepts that, you will proceed to find a lender to loan you $6,000 in return for a mortgage.
Banks and savings and loans are reluctant to take second mortgage loans on investment property like this because the property already has a loan for 80% of its value. Therefore, you will probably have to go to a private lender. Check the classified ad section in your
local newspaper. You will find that there are private lenders who advertise that they will buy
mortgage notes for cash. Call one of these lenders and tell them that you have a property that is appraised for $50,000, if it is, has an existing $40,000
first mortgage on it, and you are in
need of $6,000 cash. Ask them how large a real estate note and mortgage would have to be and what the interest rate and term would be for them to give you $6,000. Assume they respond by telling you they would need a $7,500 note and mortgage at 12% interest for a term of five years. You would then
determine, by doing a financial analysis of the property, whether or not the net operating income would support the payments on this new second mortgage and assuming the existing mortgage. If it does, you would proceed with the transaction, and in effect, buy the property no money down.
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Example
Summary
Technique #14
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Create
A Real Estate Note; Sell
For Cash
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What
You Need To
Begin:
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Good
Credit
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Summary
Of Terms:
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Asking
Price
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$50,000
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Mortgage
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$40,000
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Seller's
equity
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$10,000
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Property
was on the
market for a
while and the
seller is
anxious
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Procedures:
Real
Estate Note
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- Offer the seller $6,000
contingent
on
locating a
new second
mortgage.
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- Find
lender to
loan
$6,000
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- Look in classifieds of
local
newspaper
for
private
lenders.
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- Determine through a
financial
analysis
if the
N.O.I.
would
support
the second
mortgage
and
assumable
mortgage.
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- If so, buy; if not keep
looking.
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Results:
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- The seller receives
cash for
the equity
in the
property.
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- The
buyer has
a no money
down
transaction.
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Specific
Situations to
Apply
Technique #14
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The
Property
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Property
Offered Below
Market
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Owned Free
and Clear No
Mortgages
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The
Buyer
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Lump Sum
Cash Due Soon
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Large
Monthly Income
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You
Know People
with Cash to
Invest
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The
Seller
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Needs
All Cash for
Equity
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Outstanding
Financial
Obligations
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Large
Capital Outlay
Coming Up
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Must
Sell
Immediately
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Real
Estate Note to Investment Partners
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