cparobbins

Tony, In theory, what you said is a great idea! Unfortunately, 2nd position seller financed notes are extremely undesirable.... especially without years of payment history. Most investors would only pay about 50% of the balance of a 2nd position seller financed note unless it had years of payment history, decent borrower credit, and favorable CLTV (Combined Loan To Value) position. It is because of this that my posting geared around creating a first position lien at 95% of the appraised value. Thanks! Michele Robbins, CPA Note Funding Resources, LLC http://www.notefunding.com

Most banks require anywhere from 10% to 30% cash down for a non-owner occupied (i.e. investment) purchase. If you have a bank that will offer you terms that you can live with… then stop. Good for you. THIS strategy is not for you. THIS strategy is a tool for investors (or could-be investors) to utilize when traditional financing will NOT work for them for one reason or another and when the seller is willing to accept a discount on the property. This type of deal would be set up as if it were a seller financed transaction. Then, at closing we the ‘seller financed mortgage’ is purchased from a note buyer the funds are wired directly to the title company/ closing agent. The closing agent then pays off any underlying liens, records the documents and pays the seller his amount due. Seller financed mortgages are always bought at a discount (not at par value) so there must be enough in the deal to cover the discount in order for this strategy to make sense to the seller. The note buyer should help to structure the terms to minimize the discount. As a general rule of thumb, the seller will need to be willing to accept around 85-90% for this strategy to work. With this program, we can actually use the appraisal value (rather than the sales price) for LTV (Loan to Value) requirements. What this means is that for some deals, we can set up these investment property purchases with no cash down. For example, if a property appraises for $100,000, the Sales Price is 95,000….. we classify this as a 95%LTV loan with no cash down. Most banks use the LOWER of the appraised value or sales price. As long as we have a 95%LTV using this method, we can work this deal. With decent credit of 624 middle score or higher (we can do lower scores, but the discount on the note will be higher) we try to pay around 90% or more of the mortgage balance. The seller would receive that amount in addition to the down payment (if ANY) of the buyer. If the seller is willing to accept this type of discount (85-90%), a buyer could potentially purchase these types of residential investment properties will little or nothing down in cash. It’s a great tool to have. I hope this gets the creative juices flowing! Warmly, Michele Robbins, CPA Note Funding Resources, LLC Office (410) 827-5788 http://www.notefunding.com info@notefunding.com

I will buy notes secured by a borrower with stated income if there score is 600+. I will do no income qualifying (i.e., they need not even 'state' the income on the 1003) at 650 and over. We will do 8% interest on these FLIPS and the rehab note structures regardless of it being stated income or if it is an investment property. Hope that helps. Call me sometime if you think I can help out with a deal or if you just want to brainstorm. Warmly, Michele

So, this is just like a "disappearing" seller second, but the note can also be sold at a discount, or the new buyer could pay interest on it? This would help because if the buyer doesn't have the credit to get a 90% or higher LTV loan, the seller could contribute so the deal would close? Adam, the 2nd note is a real note. I mean I guess if the seller trashed it after closing that would be his perogative, but it's set up and recorded as a real 2nd lien. Selling 2nds are tough. They usually need 6-12 months seasoning and then are usually only sold at 50-60% of their balance. Its better for the seller to just think of it as a small investment.. a little freebie with the deal. The 2nd is created to help the deal get to the 90% LTV.. yes. Sure, if the buyer has the entire 10% in real cash, then that will be jusst more money in the seller's pocket. Remember that this is the deal only for a true FLIP. Regular deals and rehabs can be set up at 95% (and using the appraised value for potentially a zero down possibility). One more question. What is a typical "rock bottom" credit score the buyer could have to do this type of acquisition? Adam, tough question. One score of 550 is awful where another is not bad. In general I guess 550 is the rock bottom score for a simo. BUT we still want to see a few open tradelines in good standing on that credit report. If someone has nothing but bad entries we will PASS on that Borrower regardless of the score. On the other hand we can do people with NO scores or stated income or a number of other non-traditional events. Sorry for the wait! Michele

I like your example! We also have a home buying business (my husband's baby) that we do lease options, wholesaling, retailing, etc., so I really, really, really do see the whole picture here. Our website for that is MDhousebuyer.com, by the way. The only thing about your example and my example that doesn't compare is the fact that my example was about a FLIP. The article stated that in the beginning. The fact that it was a flip was a precursor to the strategy. In other words a pre-foreclosure, a divorce, etc., for some reason the seller needs out and possibly needs some cash! The deal is a FLIP and my strategy works great for that. My example allowed you to get control of the property and FLIP it without using any of your own funds and do it FAST. That doesn't work with your example (with all due respect). In my example, the seller can't wait 6 months for you to lease option it from him - for whatever reason. If the seller doesn't need the cash and will give you terms... well then SURE.... take the property, rent it out, then sell it for full retail after you get your seasoning and forget the discount on the note or the subprime lenders. I don't know of any regular lenders that will allow you to buy an investment property with only 5% cash down. I don't doubt you know them... I just don't. Maybe that is a 'state' thing. There just aren't any around here. I'm not saying that there aren't any where you are.... if you say so, I'm sure there are - but I would bet that for the most part, that type of regular financing is very hard to come by for most people - especially those not as experienced as you are. But I love the discussion! I love the strategy you propose of lease optioning it and then selling outright yourself. It wouldn't work for the deal I had in mind... but it will work for others, of course. Same deal with the strategy in my article. It's a great avenue for some deals and for other deals there are other things that make more sense. Either way.... this forum is great for just these types of discussion. Thanks so much for contributing too. Michele Robbins, CPA Note Funding Resources, LLC Office (410) 827-5788 Fax (443) 782-0775 http://www.notefunding.com info@notefunding.com

Trying to flip a property can turn ugly when your end buyer cannot get financing because their lending institution requires title seasoning. Your options are to 1) find another lender; 2) find another buyer, 3) try to ‘assign’ your Contract for your profit; or 4) find a creative strategy to get your deal closed. This article is about the last option – using creative financing to overcome traditional lending institutional guideline problems including, but not limited to the title seasoning issues. Everyone has probably heard about the strategy of creating a seller financed note to structure a deal and then selling the note at the closing table to a note investor to fund the deal. If you have not heard of this strategy, read up on it! It is a great tool to have in your back pocket when traditional financing is not possible – or not desired – for one reason or another. You can read about this on any note investor discussion board or on our website at http://www.notefunding.com under “Creative Strategy to Buy/Sell Property.” Assuming you are already aware of this strategy… you should also know that this is a great tool to use when FLIPPING a property – If – and only if - you have enough profit in the deal to cover the note discount. More about that later. When I use the term ‘flipping’, I am referring to simultaneously buying a property at a discount (i.e., pre-foreclosure, distressed seller, etc.) and then selling it at it’s true fair market value to an ‘end buyer’. In this article I am not talking about rehabbing properties. The same seller financing strategy can work (more easily, actually) with rehabbed properties, but for this discussion I am referring to strait FLIPS. This example deal is set up as follows: Assume you can purchase a property for $70,000 because the seller is 2 months behind and knows he will go into foreclosure if he doesn’t act quickly. You then set up a Buyer to purchase the property from you for its true market value of $100,000. This end buyer can put down 5% in cash at closing and has reasonable credit (600+). You can either purchase the property outright and do a 2nd closing later – or set it up as a simultaneous closing and transfer the title twice at closing. Either way, your end buyer’s bank may not fund your deal because of this ‘flip’. If that happens, you can structure your deal as Seller Financed- even if there are underlying mortgages! Your title company / closing agent or note buyer will prepare the note and mortgage for you for the closing. The note buyer on this deal might want an additional 5% 2nd position note to be ‘held’ by the seller. That would leave a 90% first lien. The interest rate might be between 8 and 9% depending upon the Buyer’s credit. The note buyer should buy the note for between 85% and 90% of the MORTGAGE balance ($90,000 x .87 = 78,300, for example) depending upon the property and the situation. So the flipper (that’s YOU) would have $78,300 from the note buyer PLUS $5,000 cash down payment from the Buyer – for a total cash amount of $83,300 PLUS the $5,000 2nd position lien. The underlying payoff of $70,000 would be made to the original seller at closing and the balance of $13,300 plus the $5,000 note is all yours. Not bad for a deal that you didn’t spend a dime on! While the discount on this ‘flip’ might seem a bit steep at first, keep in mind that the only alternative is to hold the note. The time value of money tells us that cash now is worth more than cash payments streaming in over time. Rehabbed properties and properties without title seasoning problems can also be set up this way. These properties are currently being set up at 95%LTV (Loan to Value) – EVEN INVESTMENT RESIDENTIAL PROPERTIES! The discount on the note is usually about $6,000 -$7,000 if set up properly from the beginning. The buyer is really getting a deal here. Where can you buy investment property with 5% down? I hope you find this article informative and helpful. I hope it gets the creative juices flowing! Michele Robbins, CPA Note Funding Resources, LLC Office (410) 827-5788 Fax (443) 782-0775 http://www.notefunding.com info@notefunding.com

Just one more tool to add to your tool belt when 1) a seller needs to sell a property quickly, and 2) when a buyer can not get or does not wish to get traditional financing: To sell the property quickly: One strategy that is useful to know about is the simultaneous note purchase. The seller can offer owner financing (at or close to full appraised value) and then simultaneously sell his seller financed note at closing. This strategy is great as long as the seller is willing to accept some amount below the appraised value. Why? Because all seller financed notes are purchased at a discount. All of them. The amount of the discount depends upon the buyer’s credit, down payment (if any), the type of property, the note terms, etc., etc.. So…. If the note is structured properly (the investor will work directly with the title company on the specifics), the discount can be quite minimal (5-10%). This strategy is also great for buyer’s that can not, or do not wish to get, traditional financing. While investors will not purchase a note secured by just any buyer, their requirements are generally much, much less stringent than a traditional bank’s requirements. For example, this would be great for buyers that have high DTI ratios, can’t prove self-employment (but have decent credit), don’t have title seasoning (rehabbers or rehab buyers), have bought too many properties, etc., etc. Many times Realtors use this strategy. Instead of lowering the price on a house that isn’t moving, they will offer owner financing and discount the note instead. The Contract is set up at the full appraised value (or close to it as long as the buyer agrees on the price), so their commission is paid at closing on that Value. Then the seller financed note purchase is a simultaneous (but separate) transaction that gives the seller the cash he would have received originally if he HAD lowered the price. In these situations it can be a win-win-win situation. I am available anytime to discuss strategy or a particular note purchase scenario. In addition to purchasing notes and Contract for Deeds, I am also a CPA. I have been in the real estate and investing industry for over ten years. I hope you find this information useful. Best wishes to all! Michele Robbins, CPA Note Funding Resources, LLC Office (410) 827-5788 Fax (443) 782-0775 http://www.notefunding.com info@notefunding.com