What Is Seller Financing?
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Transcript What Is Seller Financing?
Seller Financing and Notes in
The Dodd-Frank Era
Stop Discounting Real Estate!
Sell Fast with Unlimited Benefits and
Maximum Sales Prices
Investor Presentation
Phone: 480-831-5067
[email protected]
The Bank of YOU! Be The Bank!
The Bank Wins!
The Seller Finance Step by Step Process
Agree on Terms
& Sign Papers
Buyer, Seller
Agrees on Seller
Financing
Hire Pinnacle
Investments
Move into new Home
Everyone
Wins
Seller Sells note for
cash
Make Monthly
payments to Seller
Point of maximum
risk in investment
Euphoria
Denial
Excitement
Optimism
Fear
Panic
Hope
Optimism
Despondency
Source: Westcourt Funds
Depression
Point of maximum
opportunity
4 million renters want to buy. Can they?
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Zillow : More Than 4 Million First-Time Buyers Want to Enter the Housing Market in 2014,
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03/20/2014 | 11:55am US/Eastern
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•
More Than 4 Million First-Time Buyers Want to Enter the Housing Market in 2014,
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Solution Always is Seller
Financing
•
Seller Becomes the Bank
•
Money Exchanges Hands - Down Payment
•
Buyer Signs Promissory Note and Security
Instrument
•
Remaining balance is carried as a loan
Seller Financing History
1970’s
and 1980’s Seller Financed Transactions
Dominated Market
Seller
Carry Market Cooled With Continued lower
interest rates over 30 years and easy loans.
Seller Financing Today
Tenuous Financial Markets
Ever Tightening Number of Qualifying Buyer Pool
Slipshod Appraisals
Increases Flexibility Of Transactions
Increase Yield Over Traditional Investments
Avoidance of capital gains taxes
Regulatory Issue
SAFE Act - 2008
Requires licensing for consumer credit transactions
Licensee is mortgage loan originator
Must register through Federal mortgage licensing system
Sellers offering seller financing “may” need to be licensed
Real estate brokers arranging a loan/ negotiating terms
need a license
Dodd Frank Financial
Reform Act - 2010
Disclosures required for sellers/brokers involved in certain seller
financed deals
Amends TILA to require disclosures for seller financed
transactions
Sellers have to meet very strict guidelines to be exempt from
disclosure requirements
Brokers have the same standards for exemption as the SAFE
Act but must be careful with compensation
Exemptions
SELLER FINANCE CONSUMER EXEMPTIONS UNDER DFA:
One (1) OR three (3) properties in any 12 month period WHEN:
(1)The seller is a natural person.
(3) or, Corporation, LLC, partnership, trust, estate, etc.
(1,3) The seller did not construct the property
(1,3) The financing has a fixed rate and does not adjust for the first 5 years
and No negative amortization
(3) The borrower has a reasonable Ability To Repay the loan
(3) No Balloon Payment
ALL OTHER SCENARIOS REQUIRE A SFC MLO
Seller Financing Future
Large
Growing Market for Buyers With Less Than Perfect
Credit After The Foreclosure Crisis
Market
Share Increases In Rising Interest Rate
Environments
Perfect
For Properties Not Qualifying For Institutional
Financing
Retiring
sellers need steady reliable income
2010 California Transactions
2010 Sales
Traditional ~230,000
Seller Financed ~8,200
REO ~80,000
Short Sale ~100,000
Data from 2010 NAR:
Number of Seller Finance
Transactions have already more
tripled in less than 3 Years
Seller Financing Myths
Only
desperate people carry notes
Only
bad properties require seller financing
“I
need all cash at the closing so I can’t carry
the loan”
Only
unqualified buyers want seller financing
Seller Financing Underwriting
Require
Check
Assure
A Down Payment
Credit
Regulatory Compliance
Possibly
Require A Personal Guarantee
Document
Pay History
Sellers Benefits Include
Seller
saves on closing costs, repair credits and fees
Parties
negotiate interest rate, repayment schedule,
and other conditions of the loan
Defers
Keep
capital gains taxes
equity at work at interest rates higher than the
bank is paying and more than historical appreciation
rates
Seller Benefits Continued
If
the buyer stops paying, the Seller keeps everything and gets
the property back
If
seller or heirs need money, they can sell all or part of the note
for cash
Fast
Sale and Maximize the sales price by offering terms
Adds
The
liquidity to properties that don’t qualify for bank financing
property could be sold “as is” so there would be no need for
repairs
Seller Financing Strategies
1.
2.
3.
4.
5.
6.
7.
8.
AITD (Also Referred to as a “Wrap”)
Title Holding Trust
Stand Alone Second
Land Contract
Lease Option
Lease Purchase
Contract for Deed
Purchase Subject To
Sample Note
$420,000
80%
Purchase Price / Owner Occupied SFR
Note
$336,000
8.22%
Face Amount
Note Rate
Why? This Makes Sense For
Borrower
•
The up front FHA insurance is 1.75%
•
Loan origination is 1-2%
•
Down payment is 3.5%
•
That is a 6.25-7.25 minimum investment in down
payment on an FHA loan
•
On top of that there's a 1.35% add to the rate over
the life of the loan.
•
So if interest rates are 4.5% the effective rate on
•
FHA will be 5.85%
A Creative Solution Equals
A Better, Safer, Smarter Sale:
$2519.94
in Monthly Income
$139,196.40
in Total Income Over 60 Months
Potential
$40,000+ Increase in Sales Price
Potential
Savings of $12,000+ Property Repairs/ or Credits
Potential
Savings of $12,000+ in Buyer Closing Cost Credits
Potential
Savings of 33.33% in Capital Gains Taxes
No
More Taxes, Tenants, Termites or Toilets
Most Current Seller Financed Investor
Deal
Repair Estimate
Repair
Estimate for
New roof: $16,000
Kitchen: $10,000
Bathrooms: $12,500
Ext Paint: $5,500
Stucco: $17,000
Landscaping: $3,500
Int Paint: $6,500
Int Texture: $4,600
Elec Panel: $2,500
Carpet: $3,900
Wood Flooring: $3,400
Bathroom
Tiles: $1,600
Dumpsters: $2,500
Demo: $2,000
Doors: $1,850
Contingency: $4,000
Total: $97,300
Maybe a Wholesale Deal on
“Steroids”
Consumer
buyer offer
$437,500 / 30% down
$306,250 @8% 30/5
Listed
Price $350,000
Investor offer accepted by
estate@ $350,000
Buy and Hold or Flip: That is The
Question
New
investor $350,000
Flips to $437,500 buyer
30% down
Note for $306,250 &
$218,750 in the deal
Payment $2247.15
60
month IRR 17.40%
Net $222,320
12 Month IRR 44.77%
Net $114,464
Sell the note 3 months
3 Month IRR 152.59%
@12% yield and make
$84,491
The Bank of YOU! Be The Bank!
The Bank Wins!
The Seller Finance Step by Step Process
Agree on Terms
& Sign Papers
Buyer, Seller
Agrees on Seller
Financing
Hire Pinnacle
Investments
Move into new Home
Everyone
Wins
Seller Sells note for
cash
Make Monthly
payments to Seller