Seller Carry Backs and Forgiveable 2nd Help! - Posted by Charlie in Milw WI

Posted by Mike on September 08, 2001 at 20:43:48:

I’m new too but it looks like the seller wants you to qualify for an 80% loan this means you will not need private mortgage insurance (PMI)this will save you some money each month. A forgiveable 2nd is just that he can rip it up or whatever, becareful tho some have clauses like forgivable only after you have lived in the property a certain number of years like 5 or 10.
Get the seller to pay closing costs and you have a deal for no money down.

Good Luck.

Seller Carry Backs and Forgiveable 2nd Help! - Posted by Charlie in Milw WI

Posted by Charlie in Milw WI on September 08, 2001 at 17:50:00:

I am new to real estate investing and this would be my 1st property

If anyone can help with this all posts are appreciated.
Ive found a 3/2 duplex that is in distressed condition
assessed value is 37k seller asking 28k and has indicated that they are willing to carry back a forgiveable 20% 2nd mortgage?
The property could require about 2,500. to update electric paint and other assorted cosmetics. Rents would then be 400.00 each

What is a seller carry back on a 2nd mortgage and how can it benefit me if they forgive it? Why even do a second if it is forgiveable?..Tearing up the contract that is?

Does this deal make sense?

Re: Seller Carry Backs and Forgiveable 2nd Help! - Posted by Ronald * Starr

Posted by Ronald * Starr on September 08, 2001 at 21:17:43:

Charlie in Milw WI------

Probably headed for jail. Don’t want to do a “forgivable 2nd.”

You might check if there is city or county special program to fix up properties in that area. You might get a loan that is purchse price plus fix-up costs.

I agree with DewCO, I would figure a minimum of $3K a unit for minor fixup, cosmetics, etc. More than that if it is in “distressed” physical “condition.”

Does the deal make sense?

If we use your rental figure of $800 a month, this sale definately makes sense from a cash-flow standpoint. Even figuring a 10% vacancy factor that is $720 a month. Divided by $36K acquisition and fix-up costs this is 2% a month rent based on the cost. That is fantastic. You are likely to have several hundred dollars a month cash flow.

Good InvestingRon Starr******

Excellent Question… - Posted by TRandle

Posted by TRandle on September 08, 2001 at 20:57:49:

“Why even do a second if it is forgiveable?” is a good question. There may be certain circumstances that a “throwaway 2nd” is above board and legit, but usually not. Tell the seller you’ll be happy to agree to those terms as soon as you get written approval from the lender. Typically, these devices are used to commit lender fraud, and if that lender happens to pool their mortgages to sell them on the open market, the seriousness of the offense escalates. There’s too many “right” ways to do this biz without having to resort to underhanded tactics. As JT likes to say…that’s just the way I view things.

Re: Seller Carry Backs and Forgiveable 2nd Help! - Posted by dewCO

Posted by dewCO on September 08, 2001 at 20:57:09:

Not sure exactly what the “forgivable” part is either, but it sounds good. Should have aske dthe seller what they had in mind, exactly. But Mike probably has it right. However, be VERY careful about the forgiveable part being in writing and very clear. It could however, mess up the 1st at 80%, as the lender may not like that it’s forgiveable,a dn if you try to hide that from the lender it’s loan fraud.

I hope the market value is way more than the assessed value, otherwise this doesn’t appear to have enough room in it, expecially for a “distressed property”. Also only $2,500 for fix up on a duplex sounds way toooo little. Better know your values and what the repairs will likely cost.