100% Owner Financing - is this a good deal?

[toplayr]

Hi, I had my condo listed for $359,000... Someone contacted me and wants this deal:

===========================
OUR OFFER (contingent upon seeing the condo in person)

$359,000.00 at 6.5 % simple interest, with a balloon payment in 5 years. Monthly payment of ___?___ (I'm not sure, I'll need to run the numbers)
===========================

Well, if I did it right, the payments would be $1,944.58/month

I though that when you did 100% owner financing you charged a lot more interest that 6.5%??

I was also hoping for a down payment of some sort.

How should I reply to this offer, it's a slow market and I don't want to scare them away?

What should I counter offer with?

Thanks for your help!
Karen

[Dan Auito]

Depending on the severity of your motivation, I would go with 7.5% and 5% down. 5 yr balloon amortized over 30 yr schedule.
Check their credit history too!
(Why can't they get their own financing?)

[Debbie]

I am curious, at this day and age of idiotic lenders still giving away mortgages, why are the potential buyer having trouble getting mortgage?

[dealmaker]

Don't worry about scaring them off! They are NOT serious.

1. They haven't SEEN your place yet. They may have made 50 of these "offers" at the same time seeing who is desperate enough to reply.

2. When they receive your counter and see the place they'll decide that full price is "too high", and counter at $325K @ 5% to test you further.

3. I sell a lot of places seller financed, even I get "some" down payment, generally $2K on a $70K deal, $3K on a $100K deal, $5K above that. When I do I charge a PREMIUM over full price of AT LEAST $10k. I also charge 2-3% higher than market interest. I know I'm not getting anyone who could remotely get a traditional loan, I want it high enough to make them work, but not so high that I'll get it back.

4. If I were you I'd counter as follows:

$379K price
$10K down payment, leaving a loan of $369K, @ 7.5%
30 year amortization, 5 year balloon, self amortizing loan with a monthly payment of $2580, and they have to pay into (an account you hold) an escrow account 1/12 of insurance and taxes, just like a regular bank loan.

This will separate the trolls from the serious. People who make offers on properties before they've seen the property are TROLLS.

dealmaker

[Dan Auito]

TROLLS, I love that! How appropriate! Good advice Frank!

[toplayr]

Don't worry about scaring them off! They are NOT serious.

1. They haven't SEEN your place yet. They may have made 50 of these "offers" at the same time seeing who is desperate enough to reply.

Well, I should have added that we have comunicated a few times via emails before they made an offer. Also, they have visited my website:

http://www.myoceanhousecondo.com/101a.html

So they saw a lot of the condo since we have pictures and videos.




2. When they receive your counter and see the place they'll decide that full price is "too high", and counter at $325K @ 5% to test you further.

Well, I really don't think so. This is a long story but my husband had thrown them away from the begining. They wanted a fax number to make an offer, we told them to email and they got insulted and called us "unprofessional" my husband got very agravated with them... So, it was the end of them. I emailed them that we had the place rented and they got very interested again and started emailing again. They are offering the price we had originally ($359k) but after we sold our OTHER condo we raised the price back to what it should have been ($400k). We only had the price lowed at the begining because we needed to sell one of our 2 condos fast...

ALSO, now there's a NEW KID ON THE BLOCK.

This is a guy we had responded to and told him we already had an offer at $400,000 and he countered at $420,000. Now he wants to know the interest and payment per month. We are working on that now. (I know, I know... the guy is offering $20K more, DOESN'T KNOW THE interest rate and payment... OH YEAH.... and never saw the place!!! DARN... I hate this selling game! :-) )

We have the condo rented for 1 year at $1,400/month. He even suggested that we keep the rent for the first 6 month as a deposit and he would still make the mortgage payments during those months.

Q1) WHAT WOULD BE A FAIR INTEREST RATE?

Q2) I CAN DO OWNER FINANCING IF I HAVE A MORTGAGE AND A CREDIT LINE ON THE PROPERTY? ~ I HAVE $50K MORTGAGE AND USED ABOUT $60K CREDIT LINE TO MAKE THE DEPOSIT ON THE HOUSE WE JUST BOUGHT UNTIL I SELL MY EXTRA CARS (58 CHEVY AND A JAGUAR) AND PAY IT BACK.

Q3) MY ACCOUNTANT TOLD ME THAT I CAN ONLY KEEP THE CONDO FOR 3 YEARS TO AVOID THE CAPITAL GAIN TAX. NOW, IF I SELL THE CONDO AND WANT TO KEEP IT UNDER MY NAME IN CASE THE GUY DOESN'T PAY, WILL THAT CAUSE ME PROBLEM IF I OWNER FINANCE FOR 5 YEARS... 2 YEARS MORE THAN THE 3 YEARS MY ACCOUNTANT TALKED ABOUT?

Q4) HOW MANY YEARS SHOULD I DO... I WOULD THIS THE SHORTER THE BETTER?

Thanks so much for all your help... I really don't want TROLLS!!! :SM029:

[Jeffery (LCLA)]

ALSO, now there's a NEW KID ON THE BLOCK.

This is a guy we had responded to and told him we already had an offer at $400,000 and he countered at $420,000. Now he wants to know the interest and payment per month. We are working on that now. (I know, I know... the guy is offering $20K more, DOESN'T KNOW THE interest rate and payment... OH YEAH.... and never saw the place!!! DARN... I hate this selling game! :-) )

We have the condo rented for 1 year at $1,400/month. He even suggested that we keep the rent for the first 6 month as a deposit and he would still make the mortgage payments during those months.

$8400 down on a $400,000 loan? Personally, I'd want to see more cash. That will get eaten up on legal expeses if you have to foreclose.
Q1) WHAT WOULD BE A FAIR INTEREST RATE? Depends on risk. Risk is usually reduced with cash down (that's why banks want to see down payments) and credit report. Also, are you wanting Fair interest rate for you or your buyer or both? Personally, I'd start high and negotiate down.

Q2) I CAN DO OWNER FINANCING IF I HAVE A MORTGAGE AND A CREDIT LINE ON THE PROPERTY? ~ I HAVE $50K MORTGAGE AND USED ABOUT $60K CREDIT LINE TO MAKE THE DEPOSIT ON THE HOUSE WE JUST BOUGHT UNTIL I SELL MY EXTRA CARS (58 CHEVY AND A JAGUAR) AND PAY IT BACK. Sure you can.
Q3) MY ACCOUNTANT TOLD ME THAT I CAN ONLY KEEP THE CONDO FOR 3 YEARS TO AVOID THE CAPITAL GAIN TAX. NOW, IF I SELL THE CONDO AND WANT TO KEEP IT UNDER MY NAME IN CASE THE GUY DOESN'T PAY, WILL THAT CAUSE ME PROBLEM IF I OWNER FINANCE FOR 5 YEARS... 2 YEARS MORE THAN THE 3 YEARS MY ACCOUNTANT TALKED ABOUT? Check with your CPA. I have read somewhere, that when you owner finance, that sale takes place the day you sell the property, not when you collect the funds (then you pay taxes on the interest when you do collect it). I may be wrong, or confused so check with CPA.
Q4) HOW MANY YEARS SHOULD I DO... I WOULD THIS THE SHORTER THE BETTER? Huh? If you're asking how long you should finance it, then it depends on your needs. If you want cash flow and collect interest the longer the better. The payment of interest and principle won't even out until 21 1/2 years and you would have collected over $570,000 in interest and only $181,000 in principle payments. That averages out to about $26,000/ year (more than a lot of folks make actually working a JOB). If you have a balloon in 10 years, you still would have collected over $300,000 in interest. Or 5 years would be over $150,000 in interest (based on 8% apr with $20,000 down)

If you needs are cash as soon as possible, Balloon it in 3 years and let them refinance (still almost $100,000 in interest). The higher the interest, the more likely your buyers are to refi and cash you out. My broker can refi with new owner on title for one day so I'm sure that any broker can do that.

Thanks so much for all your help... I really don't want TROLLS!!! :SM029:

Trolls aren't so bad. My kids used to collect them. I like their hair (maybe because I don't have any of my own) :SM094:

[ZNICK]

Also, if their credit is poor (and I'd guess either it is terrible, or they're newbie investors and just got a new course, lol) I'd get a co-signer on the mortgage and note.

Z

[msibuyhouses]

I used a mortgage calculator to determine that the monthly payment would be $2269.00/month if amoritized over 30 years for principle and interest.

That turns out to be $27,228 in PI payments for the first year. Think the condo will appreciate more than that in a year? Absolutely!

Basically, the buyer is locking in today's prices and "saving up" to buy in 5 years.

Now how much will the condo appreciate over the next 5 years? Would you say several hundred thousand dollars????

Pretty sweet deal for the investor over the long run.

I would NEVER lease option below market value (assuming I am not financially strained and don't need the cashflow now and can't sell property any other way).