UTAH REAL ESTATE INVESTOR

How would you like to know a way to sell your home using seller financing but have no risk in the transaction. This can be accomplished through “equity only” financing. This means that the owner can sell their home and only seller finance their “equity” in the property.

While “seller financing” may sound like a scary term to most people it is actually a very powerful tool for increasing the value of your property. The main reason that seller financing will add value to your property is that you increase the number of people who can qualify to purchase your property because you control the qualification standards. The more people who can buy your home the more valuable it becomes (the basic law of supply and demand).

“Equity Only” financing is exactly what it says, the owner only finances the equity they have in the home. The way this works is the buyer is required to secure their own financing equal to (or greater) than the owner’s underlying mortgage. The loan proceeds from the buyer’s loan will pay off all indebtedness of the owner and remove the owner from future liability. The balance of the purchase price is then financed by the owner to the buyer.

Why would this be a great deal for everyone? The owner is able to sell a home more quickly than other comparable homes on the market and for full market value (sometime more). The owner is also able to dictate the terms of the financing to meet their needs. The buyer has an easier time to qualify for their conventional loan and may even qualify for better rates (depending on the LTV of the loan). The mortgage broker gets new business and a lender gets a new loan to service. Any real estate agents involved with generate commissions. The wheels of the economy turn and everyone is happy.

While there is no such thing as “no risk”, the owner in this situation has very little risk. If the buyer pays as agreed then the owner collects interest on their equity and will still preserve all of their equity too. However, should the buyer fail to pay, the owner is in a powerful position to take the house back (through foreclosure) and then sell it again. The foreclosure costs would be paid by the 1st mortgage and the original owner is in a strong position to simply buy back the property. And should the home be bought by someone else at the foreclosure auction, any dollar amount over the 1st mortgage is paid to the previous owner, thereby allowing them to collect their equity at the foreclosure auction.

Example:
Let’s assume the home is worth $100,000 and the owner has 20% equity ($20,000). By offering seller financing the owner could probably sell the home for $105,000 but we’ll assume that it is sold for $100,000. The buyer would then get a loan for $80,000 and the seller would finance $20,000 (for a $100,000 purchase price). Because the conventional loan amount is only 80% there would be no mortgage insurance which reduces the mortgage costs to the buyer (making it an even better deal).

The seller was going to use the $20,000 as a down payment to buy the next house for $200,000. With 10% down payment the seller would have had a loan for $190,000 at 6% interest with a mortgage payment of $1,140/mo. Without the 10% down payment the seller gets a loan for $200,000 at 6.25% for a payment of $1,230/mo. So the seller offers the $20,000 seller finance note of the sale of the first house at 7% interest only which gives $115/mo payments to off-set the difference for the second house payment. In the end, the seller is better off by $25/mo.

But what if the seller is able to sell the home for $110,000 instead of $100,000? Then the buyer still gets a loan for $80,000 and finances $30,000. $30,000 at 7% interest only payments is $175/mo which is $85/mo better than an outright sale. And when the buyer sells (or refinances) the property the seller will net an additional $10,000 of equity. Over 5 years this would equal an additional $15,100 for the seller ($10,000 additional equity and $5,100 additional payments). So the seller makes an additional 15% on the sale of their home using this form of seller financing.

What we must learn and remember is that seller financing is better for the seller than it is for the buyer.

Seller financing is extremely powerful because the buyer and the seller have control over all the terms of the transaction. That means that there are virtually unlimited applications for seller financing. However, all of the options for seller financing fall into just a 2 major categories: financing after the closing and financing before the closing.

The following 4 types of financing occur after the closing:

1. Free and Clear Financing – When a seller owns a property “free and clear” there are no liens or encumbrances on the property. In this situation the seller and the buyer are free to make any terms they want to in order to make a deal successful.

2. Equity Only Financing – This type of financing means that the seller only finances their equity in a property. The buyer is responsible for getting new financing to pay-off all of the seller’s encumbrances and liens. The seller is then free to finance the equity in the property.

3. Wrap Financing – This is also known as “subject to” or “blanket” financing. In this situation the buyer takes the property “subject to” the existing mortgage. The buyer is responsible for making mortgage payments to the seller and the seller is responsible for making mortgage payments to the original lender.

4. Combo Seller Financing – This type of financing is a combination of the financing options #2 & #3. The buyer can “wrap” the underlying mortgage and finance the seller’s equity.

The next 4 types of seller financing occur before the closing:

5. Purchase Option – Any time the buyer gives money to the seller (option payment) for the right to purchase the property at a given price (option price) and within a given timeframe (option period) the buyer has a “purchase option”. This is a form of seller financing because the seller still is responsible for the property and any payments until the buyer purchases the property (exercises their option to purchase) or the option expires.

6. Extended Closing – An extended closing is similar to a purchase option except that the extended closing is done with a Real Estate Purchase Contract (REPC). In the extended close the closing deadline is extended or put into the future significantly further than a typical real estate purchase.

7. Open-ended Closing –The open-ended close is also done with the REPC except the closing deadline is tied to a future event (such as the completion of an addition or remodel). The closing only occurs after the future event has occurred or has been completed.

8. Seller Partnerships- In this situation the seller may sell the property or may retain ownership. In either case, the seller contributes the property (and possibly some capital) as their contribution. The buyer would contribute the work and knowledge (and possibly some capital) to create or enhance the property value. The property would then be refinanced by the buyer or sold to a third party. The seller would get his equity and capital contribution plus an agreed partnership split of the additional profits on the transaction.

The great thing about these 8 types of seller financing is that every option can be used to benefit both the buyer and the seller. Using these seller financing options a seller can actually get a buyer to come in and improve their property, do all the fix-up and repair work at the buyer’s expense, and the buyer is excited about doing the work! I’ll explain how this can be in my next article…

One of the most misunderstood topics in real estate is “Seller Financing”. This is probably because the topic of seller financing is usually discussed from the perspective of the buyer. And in most cases the buyer is a beginning investor who is trying to get a “good deal” or they are starting to buy property with “no money down”. But all too frequently the deal falls apart and the stories explode about the problems of seller financing.

It is time to unfold the power of seller financing and the simple secrets and techniques to keeping the transaction a positive experience for everyone. While most people can explain the benefits of seller financing for a buyer what most people don’t understand is that seller financing is actually better for the seller than it is for the buyer. Here are several ways that the seller can benefit from offering seller financing on their property:

1. Timing – The seller has complete control over the timing of the sale when they are offering the financing. The seller can determine just how long it will be before the sale closes. The seller can determine how long they can stay in the house after the sale closes. The seller can determine exactly how long the buyer must pay on the mortgage and when they have to refinance and pay off the loan. And by offering seller financing they can get their home sold more quickly because of the appeal of seller financing to the market in general.

2. Higher Sales Price – Market value is based upon “supply and demand.” Most sellers are not offering seller financing so there is a limited supply but there is a huge demand. As a result, the price of the home in higher than the other comparable homes in the neighborhood. Also, because the traditional costs of mortgages are no longer in the equation you can collect that money too (as much as 3-5% of the value of the home) as part of the sales price.

3. Cash at Closing – There is nothing that says a seller must finance the entire purchase price of the property. The seller can require a down payment which will provide some cash at closing. (There are more advanced way to collect cash at closing which go way beyond a down payment but can still result in a “zero-down” for the buyer.)

4. Payments over Time – When the seller finances the equity in their property, those payments become a steady stream of income for the seller. This becomes a fantastic income stream for someone who may be down-sizing or who does not want their property for any reason (this is especially great on investment properties).

5. High Return on Investment – Considering the equity as an investment, the payments received from seller financing are better than one can expect from a savings account, CD or mutual fund. Even if the interest rate on the seller finance mortgage is small, the principle balance of the investment is larger than the seller could have received through a traditional sale.

6. Difficult Properties Sell Easily – Sellers who have properties that are difficult to sell can sell them with seller financing. Again, the demand for any property increases as more people are qualified to buy them.

7. Collateralization – The seller controls the terms of the mortgage and can require additional collateral to secure the loan. This additional collateral can come in many ways. Of course the seller can require a large down payment. However, some other options include additional co-signers on the loan or equity in a 2nd property. If the buyer owns another home or an investor own additional property, the seller can attach their seller finance note to the other property. This will make it more painful for the buyer to default because the seller can claim the additional property in the event of a foreclosure.

In selling a property it is the owner who has control over the entire transaction when they offer seller financing. The seller controls all the aspects of the sell including the timing, the price, the terms, their return on investment, and security and protection of their equity. Since the seller has the flexibility to craft a sell the meet all of their needs, why would you sell it any other way?

How would you like to offer seller financing but remove all personal liability for the property after the sale? How would you like to increase your income from your rental property and get rid of ALL property management? How would you like to get paid twice what your property is worth? How would you like to sell your investment property and never pay capital gains taxes? Stay tuned for some practical examples of seller financing tips and techniques that will keep you out of trouble when you sell your property.

I want to start investing but I don’t have any money. What can I do to get started investing in real estate?

Getting started investing in real estate does not require money. Money is an important tool but it is not a requirement for investing in real estate. While there are a myriad of ways to invest without cash here are a few ideas to consider.

• Assist an experienced investor
• Shadow an experienced investor
• Apprentice with an experienced investor
• Partner with an experienced investor
• Use your good credit and work history (traditional funding and refinancing)
• Access Lines of Credit (HELOC, BLOC, SBA, etc.)
• Use OPM (money inside your (SOI) Sphere of Influence)
• Seller Financing options

Let me summarize each of these options and show how they fit into our real estate investing business model.

Assist an experienced investor
Investing in real estate on a high level requires a team of people doing various jobs. Someone is responsible for doing research on each property before it is purchased, discovering property details, market conditions, target market parameters, financing options and so forth. Another person may be responsible for the follow-up with sellers, buyers, lenders, repair crews, cleaning crews, construction managers & workers, city officials and marketing campaigns. The next team member is responsible for the paperwork associated with each project or deal, completing everything from purchase contracts & addendums to work orders, repair requests, permits & applications and so forth. Another team member may be responsible for answering and returning phone calls, arranging contractor bids, setting appointments and showing property, tracking down owners of vacant property and many other tasks. So being involved in real estate investing can simply be a question of time, effort and energy spent in a good real estate deal.

Shadow an experienced investor
One significant aspect of investing is meeting with buyers, sellers and investors. These meetings and contacts are best done in teams (groups of at least 2 people). Our business includes knocking on the doors of homeowners in many neighborhoods of our cities. Often we stop to visit with For Sale By Owner (FSBO) sellers as we drive by their homes. This can pose a potential safety issue but going in teams increases the safety of our partners. It also creates an opportunity for a novice investor to shadow an experienced investor and learn how to talk to and negotiate with sellers, buyers and investors. It also allows the investing team to leverage the use of their experience to contact more people and increase the opportunities for investing.

Apprentice with an Experienced Investor
Working directly with an experienced investor allows you to see the details of getting an investment deal done. By helping and creating the marketing campaigns, advertising and flyers there is an opportunity to understand how to be successful in finding property and selling projects. There is also an opportunity to help with the business promotion to find additional investors and capital for the group. This allows you to learn the less glamorous but essential side of investing and it leverages the experience of the investor to get more work done.

Partner with an Experienced Investor
Partnering is a step above assisting, shadowing and apprenticing because you become a significant part of the actual investment deals. As a partner you are significant in finding equity & capital for the deals. There is a responsibility to find referrals & leads of buyers, sellers and investors who are not yet associated with our group. As a partner you begin to receive part of the profits, equity and cash-flows of each project.

Good Credit and Work History
Many people have good credit and a solid work history but just haven’t been able to save enough money to invest in real estate. These people are a significant part of our long-term investment strategy. In our business model we buy property, increase its value and sell it for a profit; but if the property doesn’t sell we refinance it and hold it long term for all the benefits of real estate investing. But there is a limit to the number of loans any one investor can have so we are constantly looking for additional people who can refinance our investment properties for the long-term. As our equity partner they get a large percentage of the profit and generally have no additional obligation to the project. And there is no cash required from our equity partners.

Lines of Credit
These investors have a different role in our system. Unlike the previous investors who refinance for the long-term, these investors use their money for the up front and short-term aspects of the project. This includes the earnest money deposit, inspections & fees, applications & permits, fix-up & repair, upgrades & construction, buying notes & loans, etc. These monies are used short-term and are repaid upon the sale or refinance of the property. Most people who have good credit and a strong job history can qualify for unsecured lines of credit, credit cards, HELOC (Home Equity Line of Credit), BLOC (Business Line of Credit), SBA Loans, etc. There are a lot of funding options even if your personal savings account is small.

Use OPM (Other People’s Money)
There are many individuals out there who have created money to invest, either through personal savings, intelligent investing, retirement accounts, etc. Many of these people want to be able to invest their hard earned money in safe and secure investments. Because you may know some of these individuals you can bring them to our group. We gain access to their funds and they get fabulous returns on their money (usually doubling their investments every 3-5 years) and you get a portion of the profits from the deals.

Seller Financing
Seller financing can allow for the purchase of property with little or no money out of pocket. Once properly understood and utilized, the investor understands that seller financing is actually better for the seller than the buyer but it does allow the investor access to the property. While the applications of seller financing are virtually infinite, the point is that there is the ability to invest in real estate without money from your own pocket.

This is just a brief summary of a few options available to someone who has the interest and desire to invest in real estate but may not have the funds currently available to invest with. We’re looking for people who want to be involved with the amazing industry of real estate investing. If you’re interested and would like to get started investing please contact Khayyam Jones at (801) 787-7797 or email to Khayyam@KhayyamJones.com and we’ll contact you shortly.

I have people asking me all the time…”how can someone buy a home with no money down.” It seems to be the ellusive investor’s dream. But there is hope. There are several ways to get into a home with no money down:

1. Rent to own/lease option to purchase; start as a renter while you save money for the down payment or build purchase credit and then buy the home you’re renting.

2. Seller finance; find a seller who needs to sell but doesn’t necessarily need their cash right away.

3. Short term seller finance purchase and equity refinance; you can start with a short-term seller finance but you will refinance the property using and equity in the property as the down payment.

4. Investing partner; find someone who has cash to invest and use their money for the down payment. You’ll need to make some financial arrangement, usually monthly payments, to repay the investor and set a time limit on how long you plan to use their money.

5. FHA purchase. This isn’t completely a no money down but they still allow grant money for the down payment.

I’m assuming that you have decent credit (at least 600 fico scores or better) and have a steady job. The down payment is the easy part but you need to be in a position to finance the property at some point. Keep the FHA loan in mind…in is pretty handy right now.