Creative Seller Financing: How to Use Seller Financing to Buy or Sell Any Real Estate (Creative Real Estate Series Book 1) by Chuck Sutherland

Author:Chuck Sutherland [Sutherland, Chuck]
Language: eng
Format: epub
Publisher: Creative Real Estate Network
Published: 2014-09-02T04:00:00+00:00

At the last minute, the potential lender for the couple buying the house decided against making the loan because of the industrial nature of the neighborhood. The neighborhood was also not a favorite of other lending institutions. I had a problem and little time to solve it. Furthermore, I realized that it could take months to find another all-cash, full-price buyer for this house in a transitional neighborhood.

Solution

I talked with the potential buyers. They were very upset, as the house really worked for them. After several hours of negotiation, they reached a new agreement.

I agreed that I would sell them the house for the same purchase price of $120,000 with seller financing of $110,000. The terms of the seller financing would be a higher interest rate of 7 percent interest amortized over twenty years. I also gave them the right to pay off the loan at any time. Finally, I agreed to give the buyers a $5,000 discount if they paid off the loan within three years.

While the 7 percent interest rate was higher than the 5 percent market interest rate with the potential lender, the buyers saw this as an acceptable cost to pay for a short period in order to buy the house they really wanted. The buyers also loved the opportunity to get the $5,000 discount by paying the loan off early, as they believed they could refinance the house long before that time. By refinancing, they would get a lower interest rate, a lower payment, and the $5,000 discount.

I did make the contract subject to being able to sell the seller-financed mortgage immediately following the closing with the buyers. I did this by simply writing a paragraph into the contract that stated, “This contract is subject to seller negotiating a firm contract to sell the first mortgage from the buyer to a third party on or before three days prior to closing. In the event that seller is unable to reached a firm agreement to sell the first mortgage to a third party, then seller may cancel this contract by giving written notice.”

I went to a local insurance claims attorney who would sometimes buy mortgages at discount from people. I had conducted some business with him in the past and knew him to be a reliable source of money. The attorney offered to buy the $110,000 carry-back note at a discounted price of $94,000. While I would be discounting the note by $16,000, it was still acceptable since I was getting full price on the property itself.

That gave the note buyer the interest on the loan plus a profit of an additional $11,000 if the buyers paid the loan off early ($16,000 discount on his purchase of the note less the $5,000 discount to the buyers for paying off the loan early). If the buyers did not pay off the loan early, the note buyer would receive the full-face amount of the note, including that $5,000, but over a longer period of time.

I had been prepared to take a discount on the price of the house for an all cash/quick close sale.

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