I am always on the lookout to buy defaulted notes from small loan companies. You know the kind that advertises on TV to consolidate debts or to finance home improvements. These notes can be bought at large discounts because the small lender doesn't want to foreclose and have to make payments on the underlying 1st mortgage loans.
Most of the time we think of seller financing as being provided by the seller when we buy, but when it comes to converting equity into cash flow, seller financing and leasing are the two principal techniques we use. The best thing one can say about seller financing that you provide to a buyer who is buying your house is that there are very few rules except to create a Note or Contract that spells out the terms of the transaction and to find a way to secure it. As a rule, when a seller provides financing, the price can be adjusted to reflect any risk that might be posed by buyer’s with lower FICO scores, and the interest rate can be fiddled according to the degree of motivation of the parties. Additionally, net settlement costs are usually lower when the seller can create the documentation he or she needs.
Interest amounts to rent on money. We've already seen how the power of compound interest creates wealth. To the person renting out money to others, there's little doubt that interest is a valuable source of income. On the other hand, when one is a borrower, interest not only increases the costs of doing business, but also increases the risk of default. Let's consider interest from the standpoint of someone who is trying to sell or buy a house to see if we can't gain some perspective on the subject.
There are two fundamental ways to make money with houses. One way is to buy it to sell or to rent it. The other was is to lend money to those who want to buy it or rent it. We've just about beat owning houses to death in the past dozen posts, but haven't said much about lending money to those who want to buy houses.
He can sell this unit for about $79,900 for cash. Under the HUD Access Program, a buyer with a reasonable credit score can qualify for 103% financing and also qualify for the first time homeowner $8000 cash tax credit. He should be able to sell out swiftly. He can wind up with a gross profit of about $38,000 with very little of his own money at stake. Wouldn't you be happy on either side of that deal?
If buyers are going to command wealth-building factors, you are going to have to be able to control the financing terms. Obviously "interest-only" will increase net cash flow and leveraged appreciation; but you’ll have given up all amortization. If you sell your property on an installment sale, you’ll have converted management effort to possibly higher income, but sacrificed tax shelter and leveraged appreciation and amortization. You’ll have passed these on to your buyer. I’m afraid there’s no way out; if you want to become filthy rich, you’re going to have to latch on to as many of the wealth-building tools as you can, and this is best done by buying property rather than selling it. The way you finance a long term rental house holds the key to accomplishing this.
The essence of creative financing is to be able to transfer equity between buyer and seller without the need for much cash. This requires at least two highly motivated parties who are willing to work together, and knowledgeable enough to make a deal. When a third party “deal-maker” is added to the mix, part of the profit can be carved out without any investment at all. Learning how to become that third party is a major key to being able to earn profits on every buy/sell/lease/Option transaction. To jog your imagination, here are ten ways that a deal can be made using creative financing with very little cash; but you’ve got to propose it.
Continue reading “When Banks Are Closed, Use Creative Financing”
There are a lot of different keys to becoming successful as a Real Estate Entrepreneur. Not the least of which is learning the financing game. Now, when I say financing, most of you will default to the bread and butter debt financing prevalent in the Real Estate Market. Let's call it Institutional Financing for lack of a better term. The average cat will never know anything more than Institutional Financing.
The tax code is replete with timing deadlines that can be used to negotiate better terms. Section 1031 requires a seller to have identified qualified replacement properties within 45 days, and to have completed the purchase transaction within the earlier of 180 days or by the date the next tax return is due, including extensions. Many a seller who uses up all this interval shopping for bargains is eventually confronted with the prospect of either buying something, or paying taxes.
Continue reading “Tax Reduction Ranks Near The Top In Seller Motivation”
The first step the taxpayer must do is to review their potential transaction. Was the property held for investment or in their trade or business? Was the property held long enough? The property must be held for one year, typically at the beginning. Following properties can be held for a shorter period of time.
