Home Flipping Houses Potential Seller Financing Flipping Opportunity: What are the Options?

Potential Seller Financing Flipping Opportunity: What are the Options?

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As you may have heard in me Bigger Pockets Podcast Episode, I’m a big fan of seller funding, exercise.. At the moment my favorite way to buy real estate is with a seller loan (but that doesn’t mean I want to buy real estate only this way). I’m also a fan of seller-financed real estate sales (also known as “owner’s carry”). In a recessionary market, we strongly believe in taking advantage of purchasing, but at some point we should also consider selling. When it comes to selling real estate with paper, it can be a lot of fun.

Now let’s explore the possibilities of seller loan sales that I am considering.

2 bedroom condo

I recently bought a two bedroom condo in Las Vegas with all my cash for about $ 65,000 after all the closing costs (two years ago I could probably buy it for less than $ 40,000, so this is a pain is). Nevertheless, it’s still a good investment – ​​when I’m typing this, I actually have a renter trying to move to this condo for $ 695. Roughly speaking, let’s say 7.5% of the cash return. Not a “mind blowing cool”, but hey, I’m waiting for this condo to return to the recent $ 150,000.

In any case, given what I know in the Las Vegas market, where it’s very difficult to find inventory, I started thinking about “what happens if I flip this property over with a seller loan”.

I absolutely dislike It was too early to sell the property before another superbubble occurred, so if we can regain most of the capital we invested in, we might consider it.

So what is my term? I would like to sell this condo for $ 90,000 with a seller loan, but I would like the buyer to reduce the remaining $ 45,000 with an 8% 30-year depreciation and a 3-year balloon payment.

Am I too ambitious? probably. But who cares? There is nothing in this crazy market. Besides, I have a renter there for $ 695 this month, so I can afford to ask a little higher.

What happens

So what happens if you find a buyer?

Roughly speaking, I’ll get back about $ 45,000 (for case study purposes, ignore the closure costs so as not to complicate the issue). This brings the total investment in real estate to $ 20,000. In the meantime, I now carry a $ 45,000 note that pays $ 330.19 a month. This isn’t too far from the $ 405 / month you would get if you had a renter minus the usual costs.

Yes, if you sell it, you don’t have to worry about maintenance costs, property taxes, insurance, and other burdens on the homeowner. All you need to do is wait for an email check.

What would be the revenue if I implemented this plan? My $ 20,000 investment produces $ 3,962.33 a year. This means that you will earn 19.81%. I have a capital gain of $ 25,000, which is not unreasonable given that most seller loan properties are sold at a premium compared to the market.

But what if that $ 20,000 capital is still important to me and I want to deploy it? Want to sell this $ 45,000 loan to someone else? If you have friends who just have money and do nothing, why not sell them a note, even at a discounted price? Suppose you sell this loan to a buddy for $ 40,000 instead of $ 45,000. He can earn $ 3,962.33 a year from an investment of $ 40,000, but still far better than the CD and stock markets at 9.91% a year. In the meantime, I got back just $ 40,000, thereby making my profit $ 20,000.

Yes, I just flipped the house over and made an additional $ 20,000 in profits. Now, if the buyer of this condo does not pay, my buddy can seize the buyer and get the condo. Isn’t it bad?

Benefits for buyers

What is included for buyers? Well, there are two options.

1.) One is that the buyer can drive out the tenant and live there. The cost of living in a condo is close to $ 575 with a $ 330.19 payment, a $ 145 HOA and $ 100 insurance and taxes. This is cheaper than the $ 695 rent. In addition, buyers will own all future gratitude possibilities. Heck, buyers will actually buy a home, it’s hard enough to do in Las Vegas. In addition, buyers were able to borrow money without going through a bank or sifting credit. It may work for someone who recently decided to seize or give up their property on a short-term sale because they bought back something bad in the mid-2000s.

2.) The buyer can stay the tenant and collect $ 695.00 per month. This will give you a profit of $ 405. After deducting the payment, he receives about $ 75 a month in cash flow. Not so many, but at least the buyer doesn’t have to pay, just wait for the house to thank.

If the house went up to $ 150,000, the buyer would have made more money because the buyer had dropped only half of the capital needed. With the power of leverage, buyers can get about $ 60,000 from an investment of $ 45,000. If the buyer pays $ 70,000 in cash to buy the condo, the buyer can make more money, but the revenue is lower in terms of percentage.

In this case, both sides can win.

Obviously, asking for a 50% down may be a bit too optimistic. But this is just the starting point for thinking about how you want to sell your property.

In the meantime, I keep posting it on Craigslist every day to see if anyone bites.

Photo: mrak75

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