How do you feel about real estate contracts?

Meaning if a person wanted to purchase a property and needed cash to buy it.

The buyer was virtually debt free or very close to it. Excellent credit. Wanted to barrow roughly 75% of the value of what he currently owned outright in real estate already.

And please do not chime in and comment about why doesn't he just go to a bank.

Not sure if this is what you mean but I have sold several pieces of property that I own by contract for deed. Get a big enough down payment to cover the unimaginable and don't stretch it out too far. 10 years is my max and at age 67 maybe time to go 5 year term. Tread carefully but I've had much more trouble from tenants than contract buyers.

If your question is, should you loan a man 75% of the value of his real estate in exchange for a deed of trust (mortgage in some area), maybe depending on:
If just land - no I would not loan that kind of money
If a single family home - depends on
Credit report run by you
Property inspection done by inspector picked by you
Appraisal by reputable appraiser you pick out
Title report and doc done by title co or attorney

If those look good and if you feel the deal works for you then do it.

If the loan is properly secured by real estate free and clear and you are the sole mortgager and properly protected with a good contract and making enough interest to make it worth your while, sure, why not? Real estate isn't going to walk off, but make sure it's recorded on the deed so the borrower can't go mortgage it with a bank unbeknownst to them.

Your post is confusing and I don't understand it. But RE contracts are about the best contracts there are in terms of enforceability. So are you asking how about taking a mortgage for a property you are selling? or something else?

Thanks guys.

No doublesharp, not talking about an owner carry situation. I have purchased that way and it did work perfectly. I am a fan out that type of deal.

AZ and Jimmy, yes that is the type of deal. In this case I would be the purchaser.

AZ, I assume you would not loan on Land because without out structures it would be more likely to go down in value?

You made a couple of good points Jimmy.

hrc, sorry. I would be a potential buyer and need an interested private investor.

Thanks guys.

I was a general partner in a real estate investment partnership years ago. I never recommended land to the investors as foreclosure rates on land were higher than condos. There is plenty of land here in Arizona and until the suburbs move towards it, the value of that land is what a buyer is willing to pay to live on ....... vacant land.

jhe, I would assume if you are someone who has cash and wish to invest it with security and receive a nice return. Why not.
And yes, sure it would be done with all the i's dotted and t's crossed.

I’ve financed a few real estate notes. Mostly for small development projects. They were basically what are sometimes called hard money loans. They paid a higher interest rate and had a lower loan to value (LTV) that a typical bank loan. They were still a bit of a PITA. They all paid off, some with decent penalties, but none of them were without drama.

Lending on a single family owner occupied house, I’d still want a higher interest rate and a lower LTV than a bank. I’d want enough room that the market could take a 20% - 25% dump, I could spend the however many months to foreclose and get the buyer out, and still get all my money and accrued interest out of a quick sale. You wouldn’t want to borrow from me. (Heck, I wouldn’t want to borrow from me. )

The challenge I see is few investors are setup to loan on single family homes. I’d bet that most who are want to makes considerably more advantageous to them (higher interest and points) and better collateralized (lower loan to value resulting in higher down payment). At some point the lender has to wonder, “Why is this borrower taking this crappy deal from me when the banks are offering much better ones?”

If you can find someone to make the loan to you on terms you are happy and comfortable with though, why not? Banks are generally a pain in the keister, so if you can avoid them and get a comparable loan with no gotchas, go for it.

Oh, re-reading, I see you are talking about borrowing 75% of the value of other real estate that you own outright. What percentage of the value of the property you are looking to buy is that amount? Or, are you going to put up not only the property you are looking to buy as collateral, but also all the other property you already own? If so, what percentage of that total value is the loan amount?

Slosig, I see my post is kind of confusing. My comment about owning RE outright was mostly about having great credit and having some assets.

If the property purchase was in the neighborhood of $400k. Borrowed amount was that amount. Would the purchased property not be sufficient collateral if it was determined to be market value or appraised? Thx

Btw, I would not consider doing something like it if the terms were not fair and reaonable, Ie: competetive.

quote:

Originally posted by old rugged cross:
Slosig, I see my post is kind of confusing. My comment about owning RE outright was mostly about having great credit and having some assets.

If the property purchase was in the neighborhood of $400k. Borrowed amount was that amount. Would the purchased property not be sufficient collateral if it was determined to be market value or appraised? Thx

Btw, I would not consider doing something like it if the terms were not fair and reaonable, Ie: competetive.

Banks typically want 80% loan to value (or require PMI, Private Mortgage Insurance, which is an additional cost). If the property appraised at $400,000, $360,000 would be a typical loan. Personally, I would want a lower loan to value percentage, but that is just me. I think that things are ridiculously frothy these days, in the stock market and the real estate market and a negative price shock wouldn't surprise me. If that happens, all of a sudden the collateral isn't worth near as much as it was when the loan was made. This was part of the problem in 2008.

Typically lenders like borrowers who have plenty of assets, but are more concerned with what assets the borrower is putting up as collateral.

I'm not sure whether you are asking because you have someone willing to loan to you and you are wondering if it is a good idea, or if you are asking because you are wondering if you will be able to find someone willing to loan to you.

Personally, I'd hit up a mortgage broker and see what they could come up with before I went looking for a hard money loan, but if you have an opportunity in front of you and are happy with the terms, drive on.

Thank you slosig. In answer to your question. It would be more #2 and three.

Also, if I do determine if it is feasible and found someone who would be interested. Some of the assets alluded to earlier would be used down the road to help satisfy the loan in part or whole as we move forward. I am not ready to do that as of now though. Hence the thoughts about the process.

quote:

Originally posted by old rugged cross:
Slosig, I see my post is kind of confusing. My comment about owning RE outright was mostly about having great credit and having some assets.

If the property purchase was in the neighborhood of $400k. Borrowed amount was that amount. Would the purchased property not be sufficient collateral if it was determined to be market value or appraised? Thx

Btw, I would not consider doing something like it if the terms were not fair and reaonable, Ie: competetive.

The easiest route be to find a seller that is willing to self finance his property, it's not as easy to find one as most are looking to cash out, but can be done.

Usually someone that holds a mortgage is going to want 20% down on a property with a house, more on vacant land as it's harder to sell, location makes or breaks that as well. That way the buyer has some skin in the game and there is something to cover foreclosure and resale fees if the buyer doesn't pay.

I once used a 4 plex rental property that I owned free and clear as collateral for a small short term loan (loan was maybe 10% of the 4 plexes value) so I could complete a cash sale on a foreclosure house I was buying and a little short on cash. The person that loaned me the money was a good customer of mine, the loan was $30k, I offered him 9% (because I knew he was making 7% on his normal investments at the time, and loans were hard to come by in 2013 and the house purchase had to be a cash deal with that bank) and repaid him in a year. He gave me what I paid him in interest back at Christmas and said it was a tip. LOL It was just easier to attach the loan to a property I already owned (less to deal with at the closing).

The loan you're looking for is going to be less competitive (higher interest rate) than a normal loan for from a bank, for sure. Check with your bank as well if you can, they have various loans and might be able to find one that will work for you. Perhaps you can mortgage a property you already have and use the funds to buy the other or something like that or a loan that uses several different assets as collateral.

The percentage of properties that an owner would be willing to finance is a small fraction of for sale properties. Then, properties that might be a bargain/good investment potential that could be owner financed, is an even smaller fraction of that.
For one thing, anybody with equity can sell out of their property, regardless of how much equity they hold. To take a note as you describe, the owner would have to own it free and clear as no bank would be willing to sign off on what I think you are proposing.

a friend of mine does owner carry contracts quite a bit. Yes, he own's them outright.
He likes them as he garner's the interest and it spreads out his tax liability over time.

I would think it would be similar for a private lender as well. Especially the interest which is what I was referring to in this thread to start with.

As a seller, I'd never do it unless I wanted the particular buyer to have the property and that was more important to me than the money.

For example, my nephew wants to buy my lake house someday. Ok, I'd help him buy it and carry the paper on it.

Otherwise, I'd always rather sell to a buyer with financing so I'm done. If I'm carrying the paper, I would want terms much better than the bank would give.

I can't tell what sort of transaction you are contemplating from your description. Honestly.

I don't know if that means you can't describe clearly, or if you are being a little coy.

Be careful to be sure you know what is going on and what everyone's relationships are. Get professional help drafting up the documents. Home-brewed deals are often a gold mine and a windfall for lawyers when they have to sort it out later. Better to pay a little now to set it up right to start with.

quote:

Originally posted by jhe888:
I can't tell what sort of transaction you are contemplating from your description. Honestly.

I don't know if that means you can't describe clearly, or if you are being a little coy.

Be careful to be sure you know what is going on and what everyone's relationships are. Get professional help drafting up the documents. Home-brewed deals are often a gold mine and a windfall for lawyers when they have to sort it out later. Better to pay a little now to set it up right to start with.

Got me beat too. Sounds like ORC is trying to lever up other property (either a single property or multiple properties) he already owns free and clear to a private financer as primary collateral for purposes of financing another piece of property?

Yes, I would say that is it rocket. As I said though.
If someone loans me the cash to buy a property. Obviously at agreed upon terms. And the person lending the $ agree's that the property's value is in line with the purchase price.

If I get hit by a truck or similar. He would receive the property title. Which he would hold until the loan was satisfied, so to speak. So is collateral necessary?

Thx BR.

Borrower
Land. Possibly with or without improvements.
To purchase it.
15 years. Possibly 10 years.


Again, Is the purchased property not sufficient as security for a loan?

You can email me to discuss. It is in my profile. Thanks. Orc