Posted by Tim (Atlanta) on October 31, 2001 at 15:01:17:
I see from your post that you are concerned about their being enough spread in this deal. You are correct to be concerned. There are a few points in this deal that would raise a red flag to me :
First, the discount you would have to take on a table funded note would eat up your profits. Normally a notebuyer would not pay face value for the note. So if you sell the house for $280k and the buyer puts $14k (5%) down, you would have a note for $266k. If the notebuyer only wants a 5% discount, that means you would get $252,700 for the note. Add the $14k down back in, and you get $266,700. That is a big $6,700 profit for you. That would be if the buyer doesn’t negotiate the price down and if you can find a note buyer for the note and the note buyer will pay you 95% of the note value. There are a lot of ifs in this scenario, right?
Second, is the market in your are good or bad for this price of house? In my area, a $270k house will sit on the market for some time. I am not interested in options on these homes because they just don’t sell quickly.
Thirdly, are there buyers out there that can afford a $280k house that need “no bank qualifying”? In my area, those would be few and far between. Depends on your area.
As for me, I would pass. You might want to get that option then try to retail the house. Not much room for profit there either. You might want to talk your friend into selling it to his company. If the company doesn’t have to pay a commission, the transaction could be a wash between retailing the house and selling it to the company.
Just a few things to think about.