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January 18th, 2010 by Dawn Rickabaugh
As many of my business dealings are across the country as a note broker and consultant, I really enjoy the opportunity to network with local sellers and real estate professionals when I get the chance.
There’s a real estate broker in Whittier that runs a traditional sales business, but also runs a tightly knit real estate investment group that uses seller financing techniques to acquire property. He recently stumbled onto my website and we’ve been chatting ever since.
Because he’s well-versed in creative ways to move property, he’s getting a listing that most agents wouldn’t, because he has more ways to help them meet their objectives. Here’s part of an email he sent his client recently:
“Happy new year! I thought that I would send you a link to the listing around the corner. They started off at $525k and now they are down to $509k. It’s been a month+ and no offers.
Offering seller financing may get her property sold. I am working with another seller who is selling his property to his tenant. I’m working with both parties and the ONLY way they pull this off is with seller financing.
So, if you, at the very least, offer/market seller financing, you will get a lot more interest, and in order to get the price you want, I don’t think that there is any question that that is what needs to happen.”
Then this response from the attorney/seller:
“Thanks. I would like to talk things over with you and see what we can accomplish with my mother’s house. In terms of seller financing – yes we can consider that.
With a down payment, then we could consider carrying back a note with probably a high enough interest rate that we could subsequently discount and sell that note.
Perhaps the best thing to do is to simply list the property at our asking price and indicate that sellers will consider some form of financing. We’ll get a feel for what people are willing to do, and let them come to us with proposals to which we can counter with all sorts of creative financing methods.”
You can feel how fluid this attorney’s attitude is because he understands the dance between property and paper.
OK, maybe he’ll need to carry paper to attract someone willing to pay his price, but he’ll walk away with cash at closing anyway if he decides to sell the note after it’s created.
How much he’ll be able to sell the note for will depend entirely on how he engineers the transaction. Because I work in the discounted note business, I’m frequently asked to consult on seller carry backs, because I know how they need to be structured to achieve the desired objectives.
If he doesn’t end up getting at least a 20% down payment from the buyer, he’ll probably want to create two notes, with the 1st being no more than 80% LTV (loan-to-value). That way, after a bit of seasoning (and assuming the buyer’s credit is decent), he’ll be able to sell for a reasonable discount.
If he wants to preserve more of his asset (take less of a discount), and wants to sell the note right after he creates it, he’ll probably want to create a smaller 1st and keep a slightly larger 2nd for cash flow.
It’s exciting to stumble across real estate professionals who get the seller financing conversation, because they can generally create better results for their clients, especially those with high-end homes and commercial properties to sell.
Always consult with your CPA, tax attorney and/or financial advisor before selling property or paper.
Dawn Rickabaugh is a RE Broker, Owner Financing Coach and Note Buyer. www.NoteQueen.com 626.292.1875