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Four Creative Real Estate IdeasUse a Graduated payment as an alternative to a balloonSeller hung up on price but will carry mortgageReal estate agent take note for commissionSeller takes second and a third, sells second, keeps third
Use a Graduated payment as an alternative to a balloonImagine the following mortgage note: 30-year amortization The monthly payment would be $733.76 followed by an balloon of $ 95069.86. Verify with our balloon calculator. Will the borrower be able to re-finance this balloon and pay you off? Maybe. But it could be just a foreclosure waiting to happen. How about though if instead the monthly payments started at $733.76 and increased by $50 a month in the following year and each consecutive year? Then let the mortgage run for 10 years with a balloon after 10 years. With this scenario, after 10 years the monthly payment is $1,183.76 and the balance just $52.516.41. A much easier sum to re-finance as even if the property has not increased in value, the borrower would have a Loan to Value of just 52%. Use our free Excel® mortgage accounting spreadsheet to compute your own scenario. Seller hung up on price but carry mortgagePay more for a property but with the seller holding a note at a lower interest rate. Here is an example: Compare these 4 offers for the same house and let us assume it would cost you 8% interest on a mortgage to pay the seller all cash:
As you can see, you're better off to pay the seller $140,000 if they will give you a 7% mortgage over 20 years. We wanted to buy a house from a seller a few years ago for $35,000 cash. They would not accept that. They DID accept $40,000 with $15,000 down and a zero interest loan for $25,000 for 100 monthly payments of $250 each. At a cost of funds to us of 8% this was the equivalent of paying $33,204 for the house. To compute your own examples, download our free different offers spreadsheet. Real estate agent take note for commissionI already hear you saying, I won't do that, I want cash to pay my bills. And anyway, what if the buyer doesn't pay me? But what if the listing is about to expire and it's a choice between carry a note or get zip? Most agents make the mistake of allowing the commission note to be in 3rd position, behind the bank and the seller carry back note. Instead, it is reasonable to require your note is AHEAD of the sellers. See this difference:
The broker's mortgage in scenario two is MUCH more saleable and has a lower risk. Seller takes second and a third, sells second, keeps thirdHere the seller wants more cash than the buyer than the buyer has. The house is worth $150,000.
All the seller has to do to receive an extra $7,000 in cash is to split the note he is going to carry into a 2nd of $10,000 and a third of $20,000. He can now sell his $10,000 note for $7,000 cash at closing and end up with his $147,000. it makes no difference to the buyer, who will still be paying a total of $150,000, except he will have to write an extra check every month to the holder of the second mortgage (that was sold for cash).
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