Posted by Tommy on October 22, 2010 at 12:16:11:
Wow! Thanks for your detailed response.
cheap houses,then selling the note - Posted by Tommy
Posted by Tommy on October 13, 2010 at 10:32:32:
I just listened to an interview about a technique to buy $5k houses that are not in terrible condition, sell with owner financing with $1,000 down to a buyer with decent credit. The exit then is to sell the note to a note buyer for around 25 to 30k. Anyone on here ever done this?
Re: cheap houses,then selling the note - Posted by Lee
Posted by Lee on December 08, 2010 at 14:14:22:
I forgot to mention that if these homes have a central AC unit then it will get stolen really quick when the units are vacant.
Most of the houses in the area will just have window units so you may be able to replace the stolen unit with window units. If the buyer is an owner occupant they may be able to get a central AC unit from the power company and pay for it in installments.
Re: cheap houses,then selling the note - Posted by Ken
Posted by Ken on October 24, 2010 at 18:05:59:
For $5000 buy it and rent it,when the economy turns around you will be able to get them sold for real good money and no discounts.Screen careful and get good tenants.In a few years you will also not have any seasoning issues
Bottom of the barrel “paper” - Posted by Michael Morrongiello
Posted by Michael Morrongiello on October 22, 2010 at 01:31:45:
We are VERY familiar with the scenario…
Lets see;
You buy a home for CASH for $5K because that is really what its worth for CASH.
You then sell it at a HIGHLY INFLATED Sales price of $30K +/- (because you can offer financing to some deadbeat borrower who has a few hundred to a thousand to put down and can’t get a loan anywhere)
Now you try to SELL the “paper”
SURPRISE!
This is Bottom of barrel “paper” (a/k/a Garbage paper) … there are few takers for such deals, and if there is any interest it will typically be at discounts of 50% or more off the unpaid balances.
We see this so called “product” all the time… the incident of default with these loans is extremely high with these low down payment deals and marginal credit and thus given the poor credit payors, lack of any real down payment, and rapid or large property increase from the Note holders acquistion price to the seller financed price creates TONS OF RISK.
Other than those who know no better and will blindly invest in this HIGH RISK “paper” most investors have lukewarm to No interest unless the Note sellers are receptive to 50% or less< of the unpaid balances.
Also many investors will have no interest unless there is a year or close to a year of timely and documentative payment history.
Word of caution- Caveat Emptor
Michael Morrongiello
Re: cheap houses,then selling the note - Posted by Leslie Arnold
Posted by Leslie Arnold on October 18, 2010 at 17:29:29:
Is this the Filthy Riches course? I keep hearing about it, but can never find anyone who’s actually seen the course and how good it is.
I find it hard to believe that you could get a house not in terrible condition for $5k. Would love to find a few dozen!
Mark To Market… - Posted by David Butler
Posted by David Butler on October 13, 2010 at 16:41:55:
Hello Tommy,
Short answer… “YES”. Best answer with information provided… “probably not”. Best answer in today’s market, with information provided… “not likely”.
The most recent detailed discussion on the point can be found in the thread “Note Seasoning” at:
http://www.creonline.com/cashflow/wwwboard3/messages/26890.html
Some related discussion you may find helpful can also be found in the responses to the question posed at:
“risky notes”
http://www.creonline.com/cashflow/wwwboard3/messages/26998.html
Hope you find this useful in your planning, and best wishes for your success.
David P. Butler
Nascent Equity &
Hotspur Investment Group
Re: Bottom of the barrel - Posted by Lee
Posted by Lee on December 08, 2010 at 14:03:52:
There is a Guru that is teaching that you can buy properties for 5k that needs little or no work and then sell it off on ebay for the downpayment.
I have monitored several of his ebay items and normally he is lucky to get $1000 - $1500 down and sometimes he has had to reauction the property several times to get it sold.
The guru even touts that you can sell the paper at or just after closing.
This does kinda work but not as easily as the guru makes it sound like.
You should plan on buying the house for about $5000 and only getting a $1000 downpayment and selling the $30k paper for about 10k unless it has some type of seasoning.
Re: Bottom of the barrel - Posted by Tommy
Posted by Tommy on October 22, 2010 at 09:51:15:
Thanks so much for the advice!
If a note buyer would pay 50% that would mean around a $9,500 profit(29k x 50%- 5k original purchase price) which is more than many wholesalers get. If I attempt this strategy I will try to get more than 1k down and hopefully find someone with over 600 credit score
Re: cheap houses,then selling the note - Posted by Lee
Posted by Lee on December 08, 2010 at 14:10:38:
These houses are normally located in low income areas and are normally older homes (30+ years old).
Most of these are in scary area that you would not feel safe in after dark.
These houses really cashflow but rarely ever appreciate. Normally they are in a deteriorating neighborhood and many of the landlords are often called “slum lords”.
You can check the demographics of an area to get the feel as to who your buyer will be and what income range they are in.
Re: cheap houses,then selling the note - Posted by Michael Morrongiello
Posted by Michael Morrongiello on October 24, 2010 at 16:59:49:
Leslie:
There a plenty of these homes in markets like Detroit, in Ohio,Indianna, parts of Mississip, and other states.
Some are in reasonably decent shape…
BUT what they sell for is about what they worth for a CASH BUYER
Michael Morrongiello
Bottom of the barrel = LOW QUALITY - Posted by Michael Morrongiello
Posted by Michael Morrongiello on December 08, 2010 at 18:50:41:
Lee:
As has been discussed here the marketplace is VERY fragmented for “paper” investors who are looking for the VERY low quality “paper” being created by these very low down payment sales, where a property is being quickly flipped (often without any work or improvements being done whatsoever to the home) to a marginal credit buyer in economically depressed areas.
Sure, there is SOME market for this “paper” but its not a robust market and it often will bring far less< than 50% of the UPB - unpaid balance due.
I suspect the “guru” is self proclaimed then…
The concepts we teach and espouse in my materials have stood the test of time thru many different market cycles.
Continued best to your success;
Michael Morrongiello
Paper Practioner
www.sunvestinc.com
Author of the following home study courses;
Paper Into Cash - The Convertible Currency - How to Effectively Create Marketable Real Estate Notes
&
The Unity of Real Estate & “Paper” - Advanced techniques for both the acquisition and disposition of properties using Real Estate “paper”
Re: Bottom of the barrel - Posted by Tommy
Posted by Tommy on October 22, 2010 at 10:33:00:
Thanks that does help. In your opinion what should be the minimum credit score buyer I should look for? Also what do you think should be the minimum down payment in this scenario? I know of homes in my market that are not in terrible condition that I can buy for 5 to 10k. If I am unable to sell to a note buyer due to the lack of seasoning I could hold it and collect payments for 6 months and then try to sell again I guess. I know the author makes investing this way sound easier than reality to sell the course.
Re: Bottom of the barrel & HIGH RISK - Posted by Michael Morrongiello
Posted by Michael Morrongiello on October 22, 2010 at 10:20:20:
Tommy:
What is Profit?
That 50% or LESS that might be paid for this “paper” is just the starting point.
Remember these VERY HIGH RISK seller carryback Notes which were created and resulting from the sale of a lower price range home (for $30K) to a marginal credit borrower with only $1,000.00 cash down was created MUST be seasoned - often for 12 months or longer.
In some cases there may be a request of RECOURSE also required of the seller of the note in order for them to move this low end HIGH RISK “paper”…
These so called “borrowers” are in reality nothing more than glorified renters. Often times they are one step away from falling off the razor’s edge and spiralig into default.
They have VERY little at risk into these properties.
We’ve seen situations in the midwest where these loans have defaulted (again a VERY high incidence of this happening), the home gets abandoned, its winter time, the pipes freeze, squatters move in, etc, and etc.)
To be CLEAR-the market for this type of seller financed “paper” created under these circumstances is fragemented at best.
Hope this helps…
Michael Morrongiello
Re: Bottom of the barrel & HIGH RISK - Posted by Tommy
Posted by Tommy on October 22, 2010 at 10:45:52:
Thanks that does help. In your opinion what should be the minimum credit score buyer I should look for? Also what do you think should be the minimum down payment in this scenario? I know of homes in my market that are not in terrible condition that I can buy for 5 to 10k. If I am unable to sell to a note buyer due to the lack of seasoning I could hold it and collect payments for 6 months and then try to sell again I guess. I know the author makes investing this way sound easier than reality to sell the course.
Creating Marketable “paper” - Posted by Michael Morrongiello
Posted by Michael Morrongiello on October 22, 2010 at 11:35:14:
Tommy;
In today’s current “paper” marketplace, the emphasis is on EQUITY and CREDIT…
Deals that adhere to that philoshipy where seller financed paper has been carrie back are VERY marketable Notes which can be readily converted into cash.
We like to see a minimum 10% down payment (and preferably more) and 620+ credit scores on payors.
Rapid appreciation files - which is what your proposed transaction would be classified as are not looked upon as favorably as someone who has OWNED a home for some period of time and then sold it utilizing Seller Financing.
Low, light, down payment borrowers, with HIGH LTV- loan to values, on fix n flip properties, where seller financing is created is “paper” that will have to Season or establish a track record of payment history. That might be 6 months, but often is a year or longer before the resulting loans are looked at favorably.
Far better to sell and finance existing inventory you might own rather than fix n flip deals. Unless as you say you are prepared to “tote the note” and hold that paper for some time to establish the certainty of a definitive payment history.
Hope that helps…
Continued best to your success;
Michael Morrongiello
Paper Practioner
www.sunvestinc.com
Author of the following home study courses;
Paper Into Cash - The Convertible Currency - How to Effectively Create Marketable Real Estate Notes
&
The Unity of Real Estate & “Paper” - Advanced techniques for both the acquisition and disposition of properties using Real Estate “paper”