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

Michele,
Here we are again. Wondering where you went to. lol
Great post.

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?

One more question.
What is a typical "rock bottom" credit score the buyer could have to do this type of acquisition?
Thanks in advance,
Adam

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

Okay if you can negotiate a great deal, get them to take a note, then you buy the note to increase your discount. Man I am CHEAP....ahh..I mean thrifty

Michele,
Thanks for your reply, it opens a lot of doors. Getting our tenant/buyers cashed out is our main priority as of late. We have so many properties with equity and sometimes the seller's can't refinanced due to penalties, credit etc. This could be a great tool.
Thanks again,
Adam

Hi, Michele. Welcome to The Naked Investor! Thanks for sharing your ideas. I've known of this technique for a while now. But, many times these things get pushed into the back of the ol' grey matter as we veer off in another direction. The occasional smack upside the head does serve its purpose.