First Deal Help!!! - Posted by Ray

Posted by JohnBoy on March 22, 2001 at 22:02:46:


Offering seller financing will always get you more calls coming in vs. trying to sell conventional. Seller financing will also open up your market share of potential buyers! Think about ALL those people out their that CAN’T get a bank loan? Do you think they would die for the chance to be able to BUY their own home vs. just renting? You bet they will! Then there’s the next group of potential buyers that would jump at the chance of being able to buy a home. This is the group of people that could get financing but they just THINK they can’t get a loan! When they see someone offering SELLER FINANCING, don’t you think they would want to jump on it? You bet!

First Deal Help!!! - Posted by Ray

Posted by Ray on March 21, 2001 at 20:19:16:

I recently Purchased and rehabed my first house. My original plan was to sell, but I do not want to to wait is there anyway I can get cash out and still rent for a positive cash flow. Here is the perticulars I purchase with a no money down construction loan $47,600. The FMV is 72,000. I was hoping to get about 18-20K and still be able to rent for cash flow. The rents for single family home are going for about $850.00. Taxes on this house are $240.00 a month. Any suggestions

Re: First Deal Help!!! - Posted by JohnBoy

Posted by JohnBoy on March 21, 2001 at 23:09:50:

If you want to get $18k - $20k out of this and still collect some cash flow coming in every month…then instead of renting…sell by offering seller financing and sell on contract.

Refinance the deal at 80% LTV. That would get you $57,600, leaving you with $10k cash after paying off the construction loan.

At 8.5% interest on a 30 year loan that would put your PI payment at $442.89 per month, plus $240 for taxes for a total payment of $682.89.

You say the house is worth $72k. Since you’re offering SELLER FINANCING, you could probably get about $80k for the property!

If you get $8k down from the buyer you now have the $18k you wanted to get out of this. $10k from the refi and $8k from your buyer.

Now you finance the balance of $72k your buyer owes at 12% amortized over 30 years with a 2 - 3 year balloon payment due. When the balloon comes due your buyer either gets a new loan to pay off the contract OR you can write up a new contract and extend the term should they not be able to get new financing. Should this happen, you should include a clause in the original contract that states in the event you agree to write a new contract that their will be an increase in the purchase price based on x percent and that amount will be financed over 30 years with a balloon due in 2 - 3 years.

Your buyers PI payment at 12% interest over 30 years would be $740.60 plus $240 for taxes, plus about $40 for insurance, for a total PITI payment of $1,020.60!

$1,020.60 - $682.89 = $337.71 per month in positive cash flow!

Assuming your buyer was to get a new loan at the end of 2 years, their pay off amount on their contract would be $71,444.32.

Your pay off amount after 2 years on your loan would be about $56,690.74.

This would leave you with getting $14,753.58 at closing!

So your total profit on this deal over two years would be:

$10k up front from the refi.
$8k up front from the buyers down payment.
$337.71 x 24 months cash flow = $8,097.84.
$14,753.58 at closing on the back end.

Total profit = $40,851.42!!!

If you were to just sell this property out right for $72k, your profit would only be $24,400.00. ($72k - $47,600 = $24,400)

You make an extra $16,451.42 on the deal by refinancing at 80% LTV…selling with seller financing for $80k, getting $8k down and carrying the balance at 12% with a two year balloon!

Re: First Deal Help!!! - Posted by Frederick Waller

Posted by Frederick Waller on March 23, 2001 at 08:57:21:

This post was a wonderful, practical post !!! I too am saving this post and will try to mirror this on every deal I do


Re: First Deal Help!!! - Posted by Ray

Posted by Ray on March 22, 2001 at 21:44:22:

Thanks for the help. The one question that I have is do you think that if I offer owner financing, I will get more people interested in the house then if I just offer conventional.


Re: First Deal Help!!! - Posted by Terry (Houston)

Posted by Terry (Houston) on March 22, 2001 at 21:12:28:

Hey I like this idea,

Thanks JohnBoy


Re: First Deal Help!!! - Posted by brandon fly_tx

Posted by brandon fly_tx on March 22, 2001 at 18:15:27:

I’m saving this post. Bravo Johnboy!