Creative Financing For Buyers & Sellers

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Information about Creative Financing For Buyers & Sellers

Published on March 24, 2008

Author: ideal4investors

Source: slideshare.net

Description

Bill Tan, President of the San Diego Creative Investors Association gives a presentation to the Ideal 4 Investors Network.

Continued Success on Your Path . . . JD & Suzanne Morris Ideal 4 Investors Wednesday Night Online Seminar Series March 12, 2008 Creative Financing Strategies For Buyers and Sellers www.ideal4investors.com □ (877) 825-3508

March 19 Short Sale Property Tour Wednesday Night Online Seminar Series Online Seminar: April 16 Investing Your IRA in Real Estate With Lisa Moren Bromma Author & Special Advisor to the Entrust Group www.ideal4investors.com □ (877) 825-3508

Suburban Atlanta Pre-Filled Lease Option Purchase Price - $189,680 Builder Paid Closing Costs – Up To $5,690 Future Sale Price - $214,338 (lease purchase in place) Option Payment - $10,717 (100% yours to keep) Monthly Rent - $1,664 (lease is in place) Your Estimated Monthly Payment - $1,362 Estimated Monthly Cash flow - $136 Total Estimated “Out of Pocket” After Move in - $11,352 $18,899 Year 1 Gross Profit Order Your Free Investment Guide: www.ideal4investors.com □ (877) 825-3508

Creative Financing Strategies Creative Financing Strategies For Buyers & Sellers For Buyers & Sellers presented by Bill Tan Bill Tan Investments, Inc presented by Bill Tan Bill Tan Investments, Inc

Contact Me Contact Me Bill Tan BT Investments, Inc (760) 634-0492 [email_address] Bill Tan BT Investments, Inc (760) 634-0492 [email_address]

How do you pay for real estate purchases? Cash Loans Let’s Think… Let’s Think…

How do you pay for real estate purchases?

Cash

Loans

How do you pay for real estate purchases? Cash Loans Other Let’s Think… Let’s Think…

How do you pay for real estate purchases?

Cash

Loans

Other

First… First… You must develop an interest in your fellow man. You must develop an interest in your fellow man. Care about the people as you listen to them. Care about the people as you listen to them.

Keep In Mind Keep In Mind “ People don’t care how much you know until they know how much you care.” “ People don’t care how much you know until they know how much you care.”

People & Business People & Business If the sellers are afraid, they won’t do business with you. If the sellers are afraid, they won’t do business with you. Make people feel secure & they will do business with you . Make people feel secure & they will do business with you .

Think On This Think On This “ Real Estate is a thinking man’s game, not a running man’s game.” “ Real Estate is a thinking man’s game , not a running man’s game.” Chuck Chatham Chuck Chatham

Clarify Clarify Define what the problem is AND make sure the sellers understand their problem. Define what the problem is AND make sure the sellers understand their problem.

Write down a proposed solution without considering its feasibility: then set it aside. Problem Solving Problem Solving

Write down a proposed solution without considering its feasibility: then set it aside.

Come up with at least two more proposed solutions. • Be sure to think them through carefully & individually and write them down also. • You want multiple possibilities in case one solution won’t work. • If you spend time thinking about a problem: you come up with better solutions, you improve the solutions and make them safer. Problem Solving Problem Solving

Come up with at least two more proposed solutions. • Be sure to think them through carefully & individually and write them down also. • You want multiple possibilities in case one solution won’t work. • If you spend time thinking about a problem: you come up with better solutions, you improve the solutions and make them safer.

Write down the benefits for the sellers and you. Write down the documents that will be necessary to transfer the property in your deal. Determine which solution is most feasible and go out and implement the most feasible solution. Problem Solving Problem Solving

Write down the benefits for the sellers and you.

Write down the documents that will be necessary to transfer the property in your deal.

Determine which solution is most feasible and go out and implement the most feasible solution.

Note! Note! DO NOT MENTION MONEY IN ASSOCIATION WITH THE SELLER’S EQUITY BECAUSE YOU DO NOT WANT THE SELLER TO CONSIDER THEIR EQUITY AS MONEY. DO NOT MENTION MONEY IN ASSOCIATION WITH THE SELLER’S EQUITY BECAUSE YOU DO NOT WANT THE SELLER TO CONSIDER THEIR EQUITY AS MONEY.

Another Note Another Note SELLERS ARE NOT MONEY LENDERS. They are selling an asset & EXTENDING CREDIT, NOT CASH. SELLERS ARE NOT MONEY LENDERS. They are selling an asset & EXTENDING CREDIT, NOT CASH.

A Quote To Use A Quote To Use “ USE WHAT YOU HAVE, TO GET WHAT YOU NEED, TO GET WHAT YOU WANT.” “ USE WHAT YOU HAVE, TO GET WHAT YOU NEED, TO GET WHAT YOU WANT.” Mike Cantu Mike Cantu

Paper Out Financing the Down Payment Creation of Wealth Share the Wealth Shared Appreciation Mortgage 2. Blanket Mortgage Ideas Ideas

Paper Out

Financing the Down Payment

Creation of Wealth

Share the Wealth

Shared Appreciation Mortgage

2. Blanket Mortgage

Partners Owners/Renters Down payment Monthly payments or negative cash flow Financial statement Substitution of Collateral Ideas Ideas

Partners

Owners/Renters

Down payment

Monthly payments or negative cash flow

Financial statement

Substitution of Collateral

5. Life Insurance policy 6. Assume the Seller’s Obligations 7. Use Talents or Expertise 8. Split off part of the property 9. Refinance “things” 10. Options Ideas Ideas

5. Life Insurance policy

6. Assume the Seller’s Obligations

7. Use Talents or Expertise

8. Split off part of the property

9. Refinance “things”

10. Options

Seller Financing Junior ‘Bene’ Buyout Wraparound Mortgage (AITD or ‘All Inclusive Trust Deed’) 3 Ways To Help 3 Ways To Help [ and Profit ! ] [ and Profit ! ]

Seller Financing

Junior ‘Bene’ Buyout

Wraparound Mortgage (AITD or ‘All Inclusive Trust Deed’)

The ARM Alarm The ARM Alarm

A Quote Of Note A Quote Of Note (s) (s) “ If you can’t find notes, make them.” “ If you can’t find notes, make them.” Jimmy Napier Jimmy Napier

Program Basics Property must be purchased at 50% LTV or less Property can’t be trashed Buyers must have sufficient income Seller Financing Seller Financing

Program Basics

Property must be purchased at 50% LTV or less

Property can’t be trashed

Buyers must have sufficient income

Seller Financing Seller Financing A Sample Scenario A Sample Scenario Purchase a $400,000 property in foreclosure at retail for $200,000 Purchase a $400,000 property in foreclosure at retail for $200,000

Breakdown: Investor Costs Seller Financing Seller Financing $280,000 Total $34,000 closing costs $20,000 rehab costs $6,000 taxes, utilities, insurance $10,000 holding costs $10,000 points and fees $200,000 hard money loan

Breakdown: Investor Costs

Total

closing costs

rehab costs

taxes, utilities, insurance

holding costs

points and fees

hard money loan

Breakdown: Property Sale Costs Seller Financing Seller Financing 600+ Buyer’s Credit Score $30,000 2 nd mortgage (Trust Deed)  10 years at 10% — interest only  $250. 00 /month $350,000 1 st mortgage (Trust Deed)  30 years at 8% — due in 10 years  2,568. 18 /month — $307,035. 73 balloon $20,000 down payment $400,000 sale price

Breakdown: Property Sale Costs

Buyer’s Credit Score

2 nd mortgage (Trust Deed)  10 years at 10% — interest only  $250. 00 /month

1 st mortgage (Trust Deed)  30 years at 8% — due in 10 years  2,568. 18 /month — $307,035. 73 balloon

down payment

sale price

Breakdown: Investor Steps $350,000 create 1 st mortgage $280,000 sell 1 st mortgage  this pays ALL costs! (hard money, rehab, sales costs, etc) (now & later) $20,000 now $3000 annually collect your cash!  down payment from 1 st (= cash profit!)  annual income from 2 nd (= cash flow!) $30,000 carry 2 nd mortgage (= $250/month!) $400,000 sell property Seller Financing Seller Financing

Breakdown: Investor Steps

create 1 st mortgage

sell 1 st mortgage  this pays ALL costs! (hard money, rehab, sales costs, etc)

collect your cash!  down payment from 1 st (= cash profit!)  annual income from 2 nd (= cash flow!)

carry 2 nd mortgage (= $250/month!)

sell property

If you do just one deal each month, here’s what happens over time… Seller Financing Seller Financing profit $240,000 cash now! $36,000/year cash flow! 1 st year  12 deals * $20,000  12 deals * $3,000 more profit $240,000 cash now! $108,000/year cash flow! 3 rd year  12 deals * $20,000  3 years * $36,000/year in comparison,… to create that much passive income with ‘traditional’ rentals, an investor would need to rent out… value needed $108,000 ÷ 3.5% = $3,085,714 (yes, that’s 3 million!) … of free and clear properties!

If you do just one deal each month, here’s what happens over time…

1 st year  12 deals * $20,000  12 deals * $3,000

3 rd year  12 deals * $20,000  3 years * $36,000/year

in comparison,… to create that much passive income with ‘traditional’ rentals, an investor would need to rent out…

If you do just one deal each month, here’s what happens over time… * passive income after just 3 years $108,000 $108,000 3.5% * Investors commonly use 3.5% as an average estimate for expected net ROI Seller Financing Seller Financing profit $240,000 cash now! $36,000/year cash flow! 1 st year  12 deals * $20,000  12 deals * $3,000 more profit $240,000 cash now! $108,000/year cash flow! 3 rd year  12 deals * $20,000  3 years * $36,000/year in comparison,… to create that much passive income with ‘traditional’ rentals, an investor would need to rent out… value needed $108,000 ÷ 3.5% = $3,085,714 (yes, that’s 3 million!) … of free and clear properties!

If you do just one deal each month, here’s what happens over time…

1 st year  12 deals * $20,000  12 deals * $3,000

3 rd year  12 deals * $20,000  3 years * $36,000/year

in comparison,… to create that much passive income with ‘traditional’ rentals, an investor would need to rent out…

Program Basics 1 st and 2 nd in default Work with owners to sell house on a short sale Looking to get a discount of at least 85-90% on 2 nd Junior ‘Bene’ Buyout Junior ‘Bene’ Buyout

Program Basics

1 st and 2 nd in default

Work with owners to sell house on a short sale

Looking to get a discount of at least 85-90% on 2 nd

Junior ‘Bene’ Buyout Junior ‘Bene’ Buyout A Sample Scenario A Sample Scenario Purchase a $100,000 note for $5,000 and make $30,000 Purchase a $100,000 note for $5,000 and make $30,000

Breakdown: Scenario $Out & $In Junior ‘Bene’ Buyout Junior ‘Bene’ Buyout $30,000 collect your cash! - $225,000 pay off 1 st + closing costs  $200,000 + $25,000 + $260,000 ‘ short sale’ of property - $5,000 buy 2 nd mortgage $300,000 $200,000 $100,000 property value  1 st mortgage  2 nd mortgage

Breakdown: Scenario $Out & $In

collect your cash!

pay off 1 st + closing costs  $200,000 + $25,000

‘ short sale’ of property

buy 2 nd mortgage

property value  1 st mortgage  2 nd mortgage

Breakdown: Scenario $Out & $In - in default - - in default - (that’s net profit!) Junior ‘Bene’ Buyout Junior ‘Bene’ Buyout $30,000 collect your cash! - $225,000 pay off 1 st + closing costs  $200,000 + $25,000 + $260,000 ‘ short sale’ of property - $5,000 buy 2 nd mortgage $300,000 $200,000 $100,000 property value  1 st mortgage  2 nd mortgage ($ out) ($ in) ($ out) ($ in… your pocket!)

Breakdown: Scenario $Out & $In

collect your cash!

pay off 1 st + closing costs  $200,000 + $25,000

‘ short sale’ of property

buy 2 nd mortgage

property value  1 st mortgage  2 nd mortgage

Program Basics Fully amortized, low-interest mortgage on property Purchase property for zero money down, subject to existing loan Sell property with higher interest rate and longer term financing Wraparound Mortgage Wraparound Mortgage

Program Basics

Fully amortized, low-interest mortgage on property

Purchase property for zero money down, subject to existing loan

Sell property with higher interest rate and longer term financing

Wraparound Mortgage Wraparound Mortgage A Sample Scenario A Sample Scenario Purchase a $500,000 SFR for $0 down and make $638. 45 /mo Pu rc hase a $500,000 SFR for $0 down and make $638. 45 /mo

Breakdown: How to wrap it Wraparound Mortgage Wraparound Mortgage $550,000 purchased 2004 ( existing financing)  $25,000 down, $525,000 1st  30 years @ 5%, $2,818. 31 /month  27 years and ~$500,000 remaining $500,000 sell on a ‘wraparound mortgage’  40 years at 8%, $3,456. 76 /month $638. 45 /mo collect your cash!  $3,456. 76 - $2,818. 31 (AITD income - existing note payment) $0 purchase now ‘subject to existing’  current property value = $500,000

Breakdown: How to wrap it

purchased 2004 ( existing financing)  $25,000 down, $525,000 1st  30 years @ 5%, $2,818. 31 /month  27 years and ~$500,000 remaining

sell on a ‘wraparound mortgage’  40 years at 8%, $3,456. 76 /month

collect your cash!  $3,456. 76 - $2,818. 31 (AITD income - existing note payment)

purchase now ‘subject to existing’  current property value = $500,000

Breakdown: How to wrap it $2,818. 31 $3,456. 76 AITD = All Inclusive Trust Deed $3,456. 76 - $2,818. 31 = net cash flow $638. 45 /mo Wraparound Mortgage Wraparound Mortgage $550,000 purchased 2004 ( existing financing)  $25,000 down, $525,000 1st  30 years @ 5%, $2,818. 31 /month  27 years and ~$500,000 remaining $500,000 sell on a ‘wraparound mortgage’  40 years at 8%, $3,456. 76 /month $638. 45 /mo collect your cash!  $3,456. 76 - $2,818. 31 (AITD income - existing note payment) $0 purchase now ‘subject to existing’  current property value = $500,000

Breakdown: How to wrap it

purchased 2004 ( existing financing)  $25,000 down, $525,000 1st  30 years @ 5%, $2,818. 31 /month  27 years and ~$500,000 remaining

sell on a ‘wraparound mortgage’  40 years at 8%, $3,456. 76 /month

collect your cash!  $3,456. 76 - $2,818. 31 (AITD income - existing note payment)

purchase now ‘subject to existing’  current property value = $500,000

Wraparound Mortgage Wraparound Mortgage One more thing… One more thing… Any principal paydown on the wrap is… Any principal paydown on the wrap is… TAX FREE!! TAX FREE!!

After 27 years of payments, the 1st is paid off. You get the entire $3456. 76 /month yourself! Remaining AITD balance (now in 1st position) is $336,524 If the buyer now refinances the property and pays you off, you get the entire… $336,524 Wraparound Mortgage Wraparound Mortgage OK, one last thing… OK, one last thing… (really!) (really!)

After 27 years of payments, the 1st is paid off. You get the entire $3456. 76 /month yourself! Remaining AITD balance (now in 1st position) is $336,524 If the buyer now refinances the property and pays you off, you get the entire… $336,524 tax free! Wraparound Mortgage Wraparound Mortgage OK, one last thing… OK, one last thing… (really!) (really!)

Seller Financing Junior ‘Bene’ Buyout Wraparound Mortgage (AITD or ‘All Inclusive Trust Deed’) Review: 3 Ways Review: 3 Ways [ To Profit ! ] [ To Profit ! ]

Seller Financing

Junior ‘Bene’ Buyout

Wraparound Mortgage (AITD or ‘All Inclusive Trust Deed’)

Thanks For Joining Us —•— Any Questions? Thanks For Joining Us —•— Any Questions?

Contact Me Contact Me Bill Tan BT Investments, Inc (760) 634-0492 [email_address] Bill Tan BT Investments, Inc (760) 634-0492 [email_address]

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