Note Creation Help / Marketing ( long) - Posted by Rob Seibert

Posted by Rob Seibert on July 06, 2000 at 23:47:48:

I have also posted this to the main newsgroup.

Creonline Folks,
I have been following this board for months and I finally
think I have found the first creative deal that I can put
together. The following memo is from an e-mail I have recently sent to my father who is the backing on some property we own at The Lake of the Ozarks in Missouri. We have a lakefront house, which after the initial purchase was
surveyed out and re-financed to create two seperate “projects”, and roughly 150’ of lakefront a 2 acre tract with shop and storage building and 25 acres more of undeveloped 2nd teir property.

The original Plan was to put in central sewer and a well and sell 1/2 acre lots, well we haven’t had the time of late nor the finances to get that rolling so I came up with the following idea out of months reading the posts at this site.

Here is a breakdown of our proposal of how to sell the back property.

75 feet of lakefront @500/ft. = 37,500.00
(this is community lake access for the subdivision)

25 acres (includes everything except shop property
and one 75 ft. lot on water. @ 2,000/acre = 50,000.00
(this is all of tracts D and C except for Midkiffs’ part)

Total Sale price = 87,500.00

15% down = 13,125.00

74,375.00 Loan with five year balloon.
Loan breakdown:
Loan 1st part = 24,375.00
paid over 60 months @ 10% interest = 518.00 / mo.
Loan 2nd part = 50,000 due in full at end of loan via balloon clause.
Total interest cost to buyer over this period would be 6,707.
Making our total take on the deal:
interest = 6,707.00
total principal paid = 24,375.00
total of balloon payment = 50,000.00
downpayment = 13,125.00
Grand total = 94,207.00

Now lets see what can happen if we actually finace more of the balance for a longer period of time?
With the same downpayment.
Loan 1st part = 50,000.00
@10% interest over 15 years
payments = 537.30/ mo
Loan 2nd part = 24,375 due in full at end of loan via balloon clause.
Total interest cost = 46,414.40
total principal paid = 50,000.00
total of balloon = 24,375.00
downpayment = 13,125.00
Grand total = 133,914.00

Now you can really begin to see how banks make their money!
Lets take this one step further and loan this same package to someone
of not so stellar credit background thereby raising the interest rate to 12%.

Loan 1st part = 50,000.00
@12% intrest over 15 years
payments = 600.08
gives us quite a bit more:
Total interest cost = 58,015.02
total pricipal paid = 50,000.00
total of balloon = 24,375.00
downpayment = 13,125.00
Grand total = 145,515.00

As you can see there are large benifits to financing this deal for someone.
I believe that we should be able to pull this off in a short amount of time, for the
following reasons.
1). The relatively low down payment needed by us allowing the buyer to get in
without having to find a large bank loan,and allowing us to totally own the property
by being able to completely pay-off CBOLO.

2). If the developer/buyer is even considering a subdivision on 2nd teir property
he has to look at this deal as win-win, even if he sells one 1acre lot for 10,000.00
per year for the five years he would be able to afford his payments.
And then have a track record of performance in sales of the property allowing him to
obtain a regular bank loan to payoff the balloon.

3). A smaller home builder would be interested in this because he would be able to
get started with as small amount of capital as possible. Nowhere else will he be able to
control as large a peice of property with so small of an investment. By the same token it is
substantial enough to keep pressure on the developer and we will be able to release leins
on the property as lots sell requiring a certain amont be paid per acre at closings ( like 3k)
That would protect us from a contractor selling all the lots in the first year then going bankrupt
before the balloon is due.

With the seller financing aspect of this we should at least put out some feelers ourselves
to the local home builders just to check interest first. Then after that go ahead and list with
community real estate.

My questions to this post are:

1). Am I on the right track here or does somone have any better ideas?

2).In reference to number 3).above does this sound viable
and if so how can a note be structured to allow for principle payments as parcels sell?

3).Could we finance say 85% and then turn around and sell this note? What kind of market would you say exists for these types of notes?

Any input would be greatly appreciated.

Thankyou in advance.

Rob Seibert

ps: I only have access to the net from work right now. And only here from wed night to sat morn. so please excuse the length of time a reply to your reply might take.