Seller Financing & Owner Financing - Amir Ben Bassat - Entrepreneur of the Week - Post 4
Seller Financing & Owner Financing - Amir Ben Bassat - Entrepreneur of the Week - Post 3
Same Thing…
As I wrote in a post yesterday, we are working with 2 very different but very similar methods.
The main point that differentiates between a finance transaction and a lease option transaction is the sale transaction.
That is, while in a finance transaction a sale is performed, in Bliss the put option is a side effect of completing the transaction.
Contract For Deed (CFD) / Land Contract
Describe the legal instrument used to make such a sale. Varies from state to state, in Ohio we work with CFDs.
So, how does it work?
We as owners of the house get into the shoes of the bank!
Anyone who hasn't seen The Banker a must-see movie!
We sell the property to a buyer who for various reasons cannot / does not want to take a mortgage from the bank. We set a selling price, interest rate and a period for the payment schedule (amortization). At the time of signing we will receive a down payment down payment and throughout the period we have defined we will receive regular payments. It is important to emphasize these are not rent payments and these are payments consisting of principal plus interest.
Why should we do that?
Two reasons
The first…
Easy... to make more money! ????
The second reason is that we have a "garbage house" and there is no bank that will agree to finance it or approve our buyers financing in the future. Therefore, we will not be able to make a lease option.
Remember? A house is suitable for a leased option only if both conditions are met. Both buyers who want to buy and a bank that will agree to finance.
Similar to the Lease Option deal once we have made the tenant a landlord, we enjoy the same change of position and all the benefits I talked about in the previous post (I am lazy who does not remember, please return to post 3).
Unlike Melis Option, in a finance transaction the buyer will be responsible for all payments! Including insurance and taxes.
Of course if the bank is not willing to give a mortgage to the tenant there is probably a reason, so we will have to price that reason both in the sale price of the house and in the percentage of interest on the loan.
How much interest? As much as possible... Everything is negotiable.
Benefits for sale in finance for a tenant:
1. Sale at a price higher than the market price by tens of percent!
To all those investors who sold them deals in 40K who thought they had made the deal of their lives until they realized it just did not work.
For all those investors who bought houses at 80K and realized that the house is only worth 40K (it hurts but there are so many of these).
A sale on finance can be a great strategic exit from the bar, and it is a tool I really like to use in situations like this.
Sale of a house even if it is not in good condition! In such deals the house does not have to be sweetened, no problem if there is an old kitchen or dirty carpets, in advance we are dealing with a population with lower standards, and what we are selling here is an opportunity and not a dream house .
3. Management and control! Anyone who has worked in low-income areas knows that getting paid on time, if at all, is a privilege that should be appreciated. A sale on Finance gives us much more control and a significantly higher return. The tenant knows that if he pays on time throughout the period, eventually the house will be his and he usually treats us and the house accordingly.
4. Tax benefits! If there is to be a capital gains tax on the difference between the purchase price and the sale price, the tax payment will be distributed according to the loan period, and in offsetting expenses and depreciation a professional accountant will be able to write off the tax liability.
5. Sophisticated exit strategy! The same mortgage we created with the tenant (Note) has buyers. If we do it right we can sell the debt itself to another investor and get out of the deal with cash. (A complex area that needs to be known in advance)
Continue reading on our site…
https://www.forumrealestateusa.com/2021/04/Entrepreneur-of-the-Week-Post-4-seller-financing-owner-financing-the-same-as-a-cult/
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