How to structure a note? - Posted by Lee

Posted by Bud Branstetter on November 16, 1998 at 11:17:49:

The first criteria that the note buyers want is to invest no more that 80% of the value of the property. In your case $31,200. Second they like to have buyer with a little more cash into the deal. If you go down to 70% ITV most will fund with 0 down. For your poorer credit risk buyers they will want a 11 1/2% range return if you broker it. They will usually want a prepayment penalty of 2-3%.

My philosophy is to determine what they can afford per month. If it is more than the 1% typical on a 30yr PITI loan then I will shorten the term. You normally end up with more cash in your pocket with a C/D lender.

How to structure a note? - Posted by Lee

Posted by Lee on November 15, 1998 at 11:27:09:

… and how to find the market that would buy it ?

I bought a 3 br. 1 bath brick house in March, for $17,750.
cash at Sherrif Sale, totaly remodeled it: new carpet & vinyl
new plumbing fixtures, water heater, replaced rotten wood
outside, painted inside & out amoung other things.

It was appraised for $39,000 in June. Most of the people
I’ve shown it to want it but can’t arrange financing via FHA.
I’ve been working with a few buyers, trying to help them get
a B,C, or D (credit) loan, no luck yet.

I have missed aprox. $130.000 of potential profits since I
bought this house because my money has been tied up.
(I know, I should have used a credit line).

It’s time to try “Owner Finaning” I have never done owner
financing & don’t know the first thing about it.

What are investors looking for?
What interest rate ?
(I realize it depends on the borrower’s credit)
What % LTV ? =(Loan To Value)
What lenght of time? (I think I’ll have to go long term,
30 yrs., to keep the payments affordable.) I am willing to
take a second if I need to, but I want to sell the first.

What I have been proposing is $700.00 to $1000.00 down,
I would take a second for 10% ($3,900) and have the buyer get
a 90% LTV first.

Boy, I am missing something here!

One thing I have learned on this one…
Financing sells real estate!

Lets talk, can ya help me here?

Lee, in Louiaiana

It depends - Posted by John Behle

Posted by John Behle on November 16, 1998 at 13:41:44:

If you have a buyer that would qualify for a 90% first and a lender that would make it, then the deal could work. The way I read it is that the only seller financing would be your second. If that is the case, understand that your second would be un-saleable. No buyer would touch it for less than a few dollars (I bid $100).

Most lenders don’t like seller financing or even an institutional second in back of them. They will want to see and verify a cash downpayment of at least 5-15% depending on the buyers credit, income, job history, etc.

To accept a second, many lenders will only go in the 70-85% range maximum on a first (and they are few).

There are a couple options. One is a buyer with other collateral like another property. You can secure the second by that other collateral and get a reasonable first on this property. Many or most lenders will still want to see (AND VERIFY) from 5-10% cash downpayment. The note would not be considered a downpayment by the lenders, but further borrowed funds - despite the “lender games” some would encourage you to play.

A better option would be to find a lender and buyer combination that gets you the highest loan to value ratio and most cash you can with seller financing in a second position. You may be looking at as low as a 70% LTV. You’ll then have to structure a second for as little as 10-15% of the balance on top of that for a buyer to be interested. They may then have the same problem if you also have a third.

In the long run, you could even be better off with seller financing for the maximum amount you can get a buyer to go for (most care about LTV, not whether there is secondary financing).

If it were me, I would also consider refinancing and then selling on a wrap. That would be the most likely way to get the maximum amount of cash out. I’d also kick at least one percent profit into the rate of the wrap. That way, the money I left in the property would at least get me a real good yield.

That note would also be a tradeable note to the right seller or it could be used as collateral to buy other properties.