Here is my offer on your property when you have good equity
This offer is for folks who have not been able to sell their home or apartment building by themselves and have plenty of equity or cash to pay Realtor fees, BUT they hate the idea of paying a real estate agent a ton of money and cutting into their profits.
Let me explain that most folks may not know how much selling a property the traditional way actually costs. Suppose the fair market value of the property in its current condition is about $200,000 and there is an existing loan on the property for $160,000. The equity appears to be $40,000, but there are other costs to consider. The gross equity may be $40,000, but the net equity is your real concern.
In this hypothetical situation, suppose a Realtor can find a well-qualified buyer with 20% down payment who will pay $180,000 (that’s just 10% less than fair market value). Considering the time constraints, the seller would probably accept that offer. Now, let’s look at numbers:
|Property Sale Price||180,000|
|Back Taxes and Liens||0.00%||0|
|Existing Debt 1st||88.89%||–160,000|
|Existing Debt 2nd||0.00%||0|
|Existing Debt 3rd||0.00%||0|
|Net Sale Proceeds||0.00%||0|
Can you see that a 10% reduction in the gross sales price produces no net equity for the seller? What if the buyer finds problems with the property and needs a repair credit? What if the seller is behind on some payments? Many sellers are unable or unwilling to bring cash to closing to cover all of these expenses.
Here is my offer…
Remember, I am a professional real estate entrepreneur with a group of experienced property owners. My group and I have done this countless times. My group wants me to find good properties in good neighborhoods. You will negotiate only with me, not some faceless committee, because I make the final decision whether to buy your property.
If your property is free and clear of all debt, then you will get a first deed of trust (or mortgage) and a promissory note for up to 90% of the fair market value of your property in its current condition (maybe a bit more for low cost properties). This note becomes the new “existing loan” on the property.
If your property already has some debt on it, then you will get a second deed of trust (or mortgage) and a promissory note for a total debt up to 90% of the fair value of your property in its current condition. This is called a seller finance junior note. The monthly payment includes the payment for the existing debt and for your seller finance note.
A “seller finance note” is an excellent way to put your equity to work generating cash flow for you, and you can sell the note for cash or use the note as a down payment to buy your next property. This is called “seller financing” or “owner carry”.
Seller financing is an “installment sale” that provides for deferring capital gains taxes until the principal is actually received, while putting your gains to work by generating interest income. Or you could use the note as a down payment in an IRC 1031 tax-deferred exchange. Talk to your CPA for more details.
I can arrange for a bank to collect the total monthly payment, and then to disburse the payments to the lien holders. If a payment is missed, then the bank will immediately notify all lien holders and you. The bank will also provide periodic statements, and you can always check the account status online. You will always know what’s happening with the loan. When I say “bank” here, I mean either a bank collections department, or a loan servicing company, or a Certified Public Accountant (CPA) escrow service. I never directly collect the payments from the buyer.
I will buy your property by taking over the payments on the existing mortgage loan. This means that your existing mortgage loan on the property will stay on the property after I take title to the property. Professionals clean the property, if needed, and then rent out the property to a good rental tenant. The rental income will pay for the mortgage loan, pay for the taxes and insurance, pay for any repairs, pay for the management, and to pay a fair monthly income.
The rental income pays your mortgage loan until the loan is cleared, or the property is refinanced, or until the property is sold to a buyer who can provide new financing at closing.
Sometimes I can find a buyer with good income who can pay your mortgage loan until they can refinance with a new mortgage loan to pay off your mortgage loan. The buyer has an “owner mentality” and wants to own the property now. In that case, I will directly assign my contract with you over to that buyer who takes over the payments on the existing loan and the payments on your equity.
Alternatively, if you are selling a high-end home, say, between $800,000 and $5,000,000, then I have an alternative solution that does not involve renting out the property. My financing solutions can dramatically increase the market demand for your high-end home, and your home is sold to a well-qualified owner-occupant! Click here for details.
You will not have anything to do after you sell the property. Professionals will take care of everything. That means professionals are finding the good tenant, paying the mortgage loan payments from the rental income, paying the taxes and insurance, paying for repairs and management, and paying a fair income, all from the rental income.
That is what real estate investors call selling your property “subject to” the existing loan. You are selling your property for the existing loan balance, and professionals are finding a good rental tenant to make the payments and to take care of the property. This is a little known method for transferring ownership of property, and it is legal and ethical. There is even a line on the US Federal government’s HUD-1 settlement statement to account for this kind of ownership transfer, as required by federal law.
I’d be happy to answer any questions that your attorney may have about the process, if they are not up to speed on it.
Here is a hypothetical example:
Let’s say the true market value of your property is $150,000 and the total of all liens and mortgages on the property is $90,000.
I will take over the payments on the $90,000 mortgage and I will have an attorney create a new junior mortgage (or deed of trust) payable from me to you of $45,000. That means I am paying you a total of $135,000 total for the property, which is 90% of the real market value.
Here is how you save a ton of money…
You will not have to pay Realtor costs (6% average). You will not have to pay closing costs (2% average). You will not have to negotiate the price (3% average). You will not have to pay for repairs (1% average). You will not have to pay carrying costs while you are waiting to sell (1% per month average). These costs are a total of 13%.
What I can pay you for your equity depends on what the property can afford to pay in its current condition and according to market rents. Suppose that I will pay you 7% annual interest-only on your equity. In this case, 7% of $45,000 is $3,150 of interest per year, paid monthly at $262.50. This is better than you can get in almost any other secured, conservative investment. Each month, I will pay at least the interest, and I can pay off as much principal as I like whenever I like. I will continue to pay on this note for up to 5 years (or more depending on how much you want for your equity), and then, depending on market conditions, I will pay off the remaining balance of the note at the end of that time as a “balloon payment”. If in my opinion the market conditions won’t afford the full pay off, then I will pay off at least 10% of the balance in a lump sum to extend the note for another 5 years.
Two Other Options
1. If you don’t want to carry your equity as a note or your have a variable interest rate loan, one other option is for you to refinance your property with a long-term, fixed interest rate loan and take out all your cash. Then I take over the fixed-rate mortgage payments and you are out of the deal with your cash. Of course, the new payments must be affordable with current market rents or I can’t make the deal with you.
2. Some folks want to steeply discount their property for all-cash at closing, rather than sell it the way I suggest. Personally, I don’t think it’s the best move financially, but sometimes it’s not about finances. My group and I buy many properties for cash, but we need a discount of 30% or more below the current market value before we will consider it.
Most people consider an offer like this an insult, so please don’t take it that way. I’m just giving you an option that many people have asked for in the past. The fact that I am making the offer is actually a compliment. The true insult is if I didn’t make the offer, then that’s like saying the property is not worth buying at any price.
Here is WHY I buy properties like this and why it makes senses for you
I can close when YOU are ready. If you need to close right away, I can do this in as few as 7 to 10 business days. If you need to wait a while, that’s not a problem either. Just let me know when you want to close and I’ll be ready.
After I sign the simple paperwork with you to purchase your property, you won’t have to do anything else. The property manager finds a good tenant and handles everything.
You will NEVER have to deal with that tenant and you will NEVER have to deal with that property after you sell it. Professionals take care of everything, and you are completely out and free to get on with your life.
You are never required to make another payment to the lender. Professionals ensure that the rental income from the good tenant is sufficient to cover everything, including the mortgage loan payments as you originally agreed with the lender.
The property is rented to a good tenant until it has enough equity to sell it for a conservative profit. Until that time comes, the rental income pays your mortgage loan, pays for repairs and management, pays for taxes and insurance, and pays a fair net income.
My group and I make money by managing the property as an investment for rental income, keeping it in good condition and being patient until the equity grows large enough to sell for a conservative profit. Professionals manage everything, so you can get on with your life and not have to deal with it anymore.
Sometimes I can find a buyer with good income who can pay your monthly mortgage loan payments until they can refinance with a new mortgage loan to pay off your mortgage loan. In that case, I will directly assign my contract with you over to that buyer who takes over the payments on the existing loan and the payments on your equity.
This is a very simple process that takes about 7 to 10 business days to close. All you have to do is sign the deed over to my company, and my attorney will provide the promissory note and deed of trust to secure your equity. You can do this when you are ready to move out, so if you need more time just let me know when is the best time for you to close.
Please be aware that the mortgage loan stays in your name until it is paid off. The rental income covers the payments, and your name stays on the loan. This may seem like a concern, but when you look at how it all fits together you’ll realize that it is not as risky as it sounds.
1. My group and I take over many properties this way, and professional property managers make sure that the properties have good tenants and are maintained in good condition.
2. My bookkeeper and my Certified Public Accountant (CPA) make sure that all of the mortgage loans, taxes and insurance, repairs and management bills are paid on time and in full.
3. My group and I have ample cash flow from all of my other businesses to cover the mortgage payment on your property in the unlikely event that the tenant moves out earlier than expected and I need to find another tenant.
4. My group and I have many general contractors, licensed and insured, who can perform quality repairs as time goes by.
Here are the criteria of properties that I am buying right now
1. The current value of the house must be between $250,000 and $5,000,000. I sometimes buy higher or lower value properties, depending on market conditions. Apartment buildings may be higher valued and I will determine the value according to the cost and structure of the existing long-term financing.
2. The mortgage loan combined amount of all loans on the property must be at least 10% less than the current market value.
3. The mortgage rate must be less than 7% per year for the remainder of the loan term, and at least 10 years remaining before the loan is due to be paid off with a balloon payment or the loan must have no balloon payment at all (that’s called “Fully Amortizing”).
4. The property must be in “move-in-ready condition”. If you aren’t sure about this, just tell me what are the apparent major defects and I let you know whether that’s a problem.
5. The mortgage loan payments must be current. I will prorate the interest to the day that I take title to the property.
6. At this time, I am not buying Mobile Homes, Condominiums, Townhomes, or Manufactured Homes, just houses and multifamily properties, and I never buy in blighted or war zone areas. The property must have city water and sewer.
That’s it! I am not very fussy. My group and I buy in “as is” condition, as long as the condition is reasonable. I don’t mind a little dirt, because I will bring in a professional cleaning and repair crew before I rent out the property. You won’t have to pay for repairs, Realtor costs, or closing costs. I won’t beat you down on the price. You also won’t have to make any more mortgage loan payments after you sell the property.
What really matters is whether the market rents are sufficient to pay for everything, including a conservative net income after paying the mortgage loan payments, paying the taxes and insurance, and paying for repairs and management. If I can’t make the deal with you because the market rents are too low, then I’ll inform you honestly and up front. I won’t jerk you around, because it’s just a waste of your time and my time. I will know this before I sign the deal with you, and it’s my responsibility after I close the deal.
If you are interested in selling your property “subject to” the existing mortgage loan, then please fill out the form by clicking here and I will call you to discuss your options.
Frequently Asked Questions
1. Can I still get another mortgage loan to buy my next property when this mortgage loan is still in my name?
The short answer is YES. Mortgage lenders will see this loan on your credit report, but will consider it a sale rather than a liability. As long as you have good credit, which is always required for mortgage loans, they will not count this loan against you as a debt and it will not affect the amount that you can borrow for your next purchase. You can confirm this by calling any mortgage lender and asking them about it. You will receive a legal document that proves that someone else is making the payments on this loan, so you can qualify for your next new loan.
2. I have equity in my property and I want to get something for it.
If you have much more than 10% of real equity in the property, then you should look at the options I listed above. You can get most of your equity as monthly payments or you can refinance the property and then sell it to me subject to the new debt. Of course, the new payments must be affordable with current market rents or I can’t make the deal with you.
Also, did you know that when you carry your equity as a note that you can use that note as a down payment on your next property? Or you can sell the note for cash to a 3rd party note buyer. This is perfectly legal and happens every day.
If you have 10% or less equity, then that equity will be consumed when you sell the property through a real estate agent. Most folks in this group have less equity than it would cost to sell the property. They must come to closing with extra cash to pay someone to buy the property. That’s why they call that small equity “Realtor Equity”. The equity only exists when you can successfully sell the property as a “For Sale by Owner” (FSBO). If you have little equity, then click here.
By the way, it is possible as a FSBO to get some of this equity at closing, but you are still responsible for paying closing costs, carrying costs while waiting for a buyer, negotiating on the price and paying for repairs. On average, about 85% of all FSBO fail to find a buyer that can deliver all cash to the closing.
3. My mortgage loan has a “due on sale” clause. If I sign it over to you, will the mortgage company foreclose?
About 99% of all mortgage loans have a standard “due on sale” clause written into them. That gives the lender the option, but not the obligation, to accelerate the loan and get paid off. When the loan payments are kept current, the last thing the lender wants to do is stop that cash flow and gain a liability of a non-performing loan or worse, a vacant property. Thousands of houses have been bought subject to the existing loan and the lender has allowed the conveyance.
Lenders are in the business to receive payments on their loans, not take back properties, especially properties with little or no equity. It just doesn’t make financial sense for lenders to cancel that income stream and foreclose on the property. Lenders have credit scores, too. Taking back too many foreclosed properties damages their credit and impairs their ability to make new loans. Lenders DO NOT WANT to foreclose on your property, especially when the payments are current. With over one million properties foreclosing this year for default, why would any lender want to foreclose on a performing loan and further damage their own credit?
Alright, I want to sell to you my property. What should I do next?
Just click here and fill in the requested information in the form. You can also ask questions in the space provided. I’ll look over the information and call you. Remember, you have no risk or obligation when you inquire about selling your property to me. You decide whether and when to sell your property to me after I make a formal offer to you.