Posted by David Butler on March 05, 2006 at 18:39:26:
Hello Again Jennifer,
While you are telling the Seller your plan, you can’t actually do it. HE has to do it. Those are his payments to sell all or part of. A CREI such as your self structures this kind of transaction all the time, including bringing the seller a buyer for the note payments (as I mentioned in my original response), but want to be sure you have a clear understanding of Who has What rights here.
As for the other, you appear to be using some “smoke & mirrors” and confusing yourself in the process.
You write a contract for $320k purchase price, with $64,000 down, and $256k new note secured by property. You then sell off 42 payments from that first to generate the $64,000 for the down payments. No matter how or what you call it, the description and net result I showed your previously describes the real deal.
Let’s take another look using your “funny money” approach here. I am Mr. Seller. I sell you my property for $320,000, with $64,000 down, and a note for $256,000, payable over 240 months. If that note goes full term, I receive $513,909.60 in total monthly payments, plus the $64,000. That’s $577,909.60 in total cash payments to me. And I get a total of $153,934.18 over the next 42 months.
Following your logic here on your deal structure, I would get $64,000 now, plus 198 payments totalling $423,975.42 = $487,975.42. And I would only get $64,000 over the first 42 months!
The balloon scenario makes the deal even worse, in that there is limited interest down the road to beef up the numbers, as it is cut-off by early payoff.
Now the tougher part. We all have to make some decisions about our own integrity and ethics in what constitutes fair dealing.
Your last sentence appears to indicate you want to “fool” the seller into accepting an offer that he most likely would NOT accept if you fully explained the differences in his net values, as I did above.
Please don’t take this wrong - many beginning CREI’s get a bit too excited about putting a deal together, and as a result, lose sight of their moral compass.
But generally, those kinds of business practices come back to haunt you one way or the other - and for most folks that kind of approach doesn’t feel that good, over time.
Better to get what you want by solving people’s problems, rather than creating more for them. That’s the classic “Win-Win” type of transaction we like to talk about - and to pull it off, both sides have to come out of a transaction mutually satisfied, based on material facts.
Hope that helps, and again, best wishes for your success going forward!
David P. Butler