Sell For 10% Down With 100% Safety
Many investors like myself start out buying real estate to either keep for rental properties or to hold just long enough to re-sell at a reasonable profit! A large percentage of investors will find it necessary to carry back mortgages (promissory notes) for much of their equity in order to facilitate sales. Obviously, it’s much easier to sell properties when the seller offers good owner financing. It’s also easier to “jack up” the price when good terms and seller financing are offered!
As a result of these “carryback transactions” — Many small-time investors end up with “big time” note payments coming in after they sell all their properties. It’s kind of like a natural progression for investors — Transitioning from active daily management to a once-a-month trek to the mailbox!
HOW TO LIVE LIKE A KING ON A $1600 PENSION
A friend of mine, named -Sheldon, bought houses while he worked for IBM fixing computers! Sheldon recently sold his last two 4-unit buildings. He retired from IBM nearly two years ago. His retirement check from IBM is $1600 per month. His carryback notes from investing are $9,500. Sheldon will be the first to agree — Note payments coming in every month are very green indeed! Sheldon claims the note payments spend just as well as the IBM checks!
The bad news about selling all your properties with carryback financing is that you might not be in a position to pay all cash to buy a yacht, but the good news is –It won’t matter very much because they’ll sell it to you anyway. Exactly the same way you sold your houses!
ADDING EXTRA SAFETY TO SELLER CARRYBACK NOTES
It’s extremely important that you protect your backside when you sell properties and carry back the financing! This is very important because you don’t want to lose big bucks takings back (foreclosing) a property if the buyer can’t collect his rents and allows the houses to get trashed! This is the biggest concern for investors like myself who specialize in selling at tip-top prices with low (10%) down payments and easy-pay monthly terms. In order to protect myself, I use what I call my “2-FER” PROTECTION PLAN. The name comes from the 2 for the price of 1 sales used by major department stores to entice buyers! For example, stores will offer 2 pair of men’s jeans for the price of only 1 pair. The store jargon for this type of sale is a 2-fer sale.
Basically, what I need in exchange for selling properties with low cash down payment and EZ customized terms is more security! I want additional collateral, besides the property I’m selling. This can be easily accomplished if my buyer owns other real estate with equity and is willing to allow me to place a temporary mortgage on that property!
Most buyers, particularly “first timers”, are willing to accept this condition in exchange for the liberal purchase terms I offer! I have even recorded several additional collateral mortgages on the homes of my buyer’s parents! Obviously, it takes some convincing, but it generally always works. Here’s how a conversation might sound when I’m explaining the proposition to a buyer.
STICK TO THE FACTS AND SELL THE PLAN
Look Mr. Buyer, I’m more than happy to sell you my choice property (remember folks, I only sell fixed-up properties that look good), for very little money down! (Usually 10%) And, I’m also perfectly willing to give you good seller financing with payments you’ll be able to handle every month! I want you to be successful after you buy the property from me. The last thing I want is a messed-up property back! Now here’s my problem — 10% down is not really enough to protect me if things don’t work out for you! It could easily cost me 10% and more if I had to foreclose and fix-up the property again! What I need from you, Mr. Buyer, is a little more protection.
Let me suggest a plan that won’t cost you a dime! I will place a temporary mortgage on your residence (or other suitable property) for the amount of $50,000. There will be no payments and no interest charges on this mortgage! After you make 60 payments on my carryback note, I’ll instruct the title company to automatically remove the mortgage on your home! In other words, Mr. Buyer, you’ll be pledging an extra $ 50,000 worth of security to assure me that you will keep your promise to make the payments on my property — At least the first 60 months anyway!
BUYERS CAN BENEFIT BUT THE SELLER GETS PROTECTION
In case you’re wondering why would any buyer do this, the reason is quite simple. They will do it to get the low down payment deal with my EZ pay seller financing. After all, if my buyer does nothing more than what he promises to do anyway – the extra mortgage can do him no harm. If he doesn’t, however, I can foreclose on two mortgages instead of only one. Remember, the 2 pair of jeans for the price of one! Just substitute mortgages for jeans and you’ll fully understand how my 2-fer plan works to protect me.
I have no set rules about 60 months or $50,000 worth of additional collateral! You will need to evaluate your own level of risk. There are some situations where taking back a property would be beneficial to me – others not so. In almost all situations I would come out ahead if I were forced to foreclose on both mortgages. As a practical matter, if the buyer of your property turns out to be a flake, chances are you’d be paid the $50,000 added collateral amount and get your sale property back.
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