Seller needs $100k -- ideas for creating the note - Posted by Monique

Posted by Terry Vaughan on October 25, 2000 at 08:19:00:


I liked your structure, but "T-Value gives me different numbers.

Balloon: $203,009.59

Be careful with this deal because it could be a little “skinny”. Make sure your numbers are accurate!

Seller needs $100k – ideas for creating the note - Posted by Monique

Posted by Monique on October 21, 2000 at 22:38:14:

Any ideas on structuring a seller 2nd note for sale at closing to get the seller what he needs?
Here are the details:

FMV: $270,000
Seller owes: $120,000 with a 8% interest loan
Seller WANTS: $110,000 cash at closing and payoff of his loan
Seller NEEDS: $100,000 cash at closing

I offered $240,000 cash on an option to purchase. The seller wants closure and a definitive sale – he’s willing to sell for less for a sure deal.

I know I would prefer to purchase a 2nd mortgage that is wrapped around a 1st mortgage over one that is not wrapped, if given a choice. Given that, if the seller is willing to create and sell a wraparound 2nd to get his house sold, any ideas on structuring that wrap so that it:

  1. gets the seller what he NEEDS (the $100k cash)
  2. allows the investor to purchase the house at reasonable discount off the $270k FMV


Answering my own question … Comments Anyone? - Posted by Monique

Posted by Monique on October 22, 2000 at 16:08:08:

I’ve thought about this deal some more since last night and I’ve come up with the following structure. I would definitely appreciate anyone’s thoughts and comments on this.

Seller creates a $210k wraparound mortgage with a 6 yr balloon to sell for cash at closing:
N=72, I=10.25%, PV=210,000, PMT=1881.81, FV=201,289.97

Seller’s underlying mortgage is at 9% (not 8% mentioned in orig post) with $1300/month PITI. I will have to verify the age of the mortgage and the exact amount of taxes and insurance. Based on what I know about the area’s taxes and how long the Seller has been in the house, I’m assuming $1025/mo is P&I at that the loan is 60 months old. After 72 additional payments:
N=112, I=9%, PV=120,000, PMT=1025, FV=98,181.37
(I know it’s not quite scientific without exact numbers on the existing loan.)

Cashflows for the Note Buyer:

  • $856.81/month for 72 months
  • $103,108.60 lump sum in 72 months

At 15% yield, this wraparound mortgage is worth $82,676.

So, if the Investor purchasing the house makes a $18,000 down payment, the Seller gets $100,676 at closing to meet the Seller’s NEEDS. If the Investor agrees to pay the Seller $10,000 at some future date (presumably after the Investor sells the house), the Seller would get the $10k that he WANTS. The effective purchase price to the Investor is $238,000 (or, $18,000 + $10,000 + $210,000) for a $270,000 house.

Am I missing anything?

Thanks in advance,