LET'S TAKE A TYPICAL $100K HOUSE. SELLER OWES $50K. YOU MIGHT.............
- Assume underlying ...Seller carry back $50k second deed of trust or unsecured note.
- New loan for $70K...Seller carry back second for $30K...notice the low loan to value for the lender in first position.
- New $100K wrap loan. Pay to escrow on the whole $100k and escrow pays the $50k underlying out of payment. ..Balance goes to seller.
- Seller refi 80% LTV (Loan to Value) ...Payoff the $50K ...Seller gets $30k net from refi...You assume $80K...Seller carries note in second position for $20K plus fees to refi ...Say $22K.
- Give seller $60K down, with note for $40K secured by a second position equity in another piece of real estate. Get a 75% LTV loan on subject property ....Out of this $75K pay off the 60K down and walk out of escrow with $15K in your pocket.
- Get a construction loan based on the future value of subject property ....fixed up say it is worth $130K....borrow 75% and have seller carry back second DOT for one year...$25K on note...The cost of loan is or $97,500. But they give $75K at ·closing. Use $12,500 to fix up the house out of the $22,500 available to do so ...Put $10K in your pocket out of the "pull-out" of the cost breakdown ...cost loan. When job is done...refi the property based on its new value for 90% LTV... ($l17, 000.) Payoff the $97500.construction loan ...payoff the note for $25K with the seller and you still have $4500 left over from the pull-out of the cost loan. Not bad, huh? A new house and $4500.00.
- Offer $105K for property on a wrap (all inclusive trust deed) with terms of 8% per annum with a cash out in 10 years.
- Substitute what the seller needs in trade for the down payment.
- Assume $50K seller carry. back, $30K on a third deed of trust. Open second position for a ·second mortgage to go to a lender and borrow the $20K to give to the seller as down payment.
- Does 'the seller really want to sell or do they just need some capital and their equity is their only source? What about a life estate?
- Offer all cash at a discounted price contingent upon the underlying discounting for cash as well. Then get a new 80% loan to value loan to cash out all involved.
- Bring in a financial partner to put up the down payment in trade for a favorable return on his investment.
- Bring in a financial partner to share in the equity of the subject property.
Options are another great way to keep an offer open.
A FEW BASIC MECHANICS
- Offer earnest money with a note due at closing whenever possible
- And or Assigns always as the buyer
- An understanding of Subordination agreements
- An understanding of Substitution of Security
- An understanding of how to handcraft your cash flow into the offer.
- Remember that the first years of property ownership are the most crucial cash flow years.