Buy, Flip, Sell - Good Little Strategy

[Guest Michele Robbins, CPA]

There is a creative financing strategy that is used to help buyers, sellers, Realtors and even flippers turn hard to do deals into closed deals using owner financing. This strategy works well even when the seller has an underlying mortgage, is facing foreclosure, or just wants to sell the property quickly. It also works well when the buyer cannot or does not wish to use traditional lending. The property sale is structured as a seller financed transaction. The owner financed mortgage can be set up in lieu of traditional financing and then that note/mortgage/deed can be sold at closing (or any time thereafter) for cash. So - the seller gets the cash they need, the buyer gets the property they want, the Realtor (if there is one) gets their commission, and the house gets sold very quickly.

 

A couple of things to note right away: This strategy ONLY works if 1) traditional financing does not work or is not desired for some reason; 2) the seller is willing to take a discount on the property; 3) everyone can be creative when structuring the deal. Here is why: The seller financed note is purchased at a discount depending upon the type of property, the buyer's credit score, the amount of cash down, the interest rate on the note, etc. So, if the buyer can get regular financing that's usually the best way to go because there is no discount. However, there are many reasons people can't or don't want to go traditional. For example, high DTI ratios, too many new property purchases, can't prove self employment income, etc. So, when one of those reasons are present and the seller is willing to take a discount, this strategy can be a win-win situation.

 

Many Realtors use this strategy when a property isn't moving. Instead of lowering the Sales Price, they leave the sales price at full appraised value..... but offer owner financing and discount the note instead. This widens the pool of buyers and property sells quickly. The seller gets the cash he would have received if he lowered the price, the buyer gets the property they may not have been able to get traditionally, and the Realtor gets her commission based on the full Sales Price on the Contract.

 

These types of transactions can be structured for the buyer, the seller, or the "flipper". These notes can be purchased at closing or anytime after the closing. Contract for Deeds can also be purchased. First lien notes secured by real property are usually preferred by most investors.

 

Hope this helps to get the creative juices flowing.

 

Warmly,

 

Michele Robbins, CPA

Note Funding Resources, LLC

Office (410) 758-0098

http://www.notefunding.com

info@notefunding.com