An Age-Old Concept Reaping Future Rewards

Why
are
social media like Facebook and Instagram
so darn popular among real estate and mortgage folks?  Hint: the top reason might be an endless
supply of memes, cat videos, and the chance to be snarky, but the other reason
runs a VERY CLOSE second.  Give up?  Answer: 
They’re free –
and they really help even the playing field by enabling a one-person shop look
and market like an organization who employs an army of wordsmiths and graphic
artists. This new century is glorious, right? 
With that in mind, let me re-introduce you to a centuries-old concept
that is equally glorious –
and can help IMPROVE the playing field for you, regardless of the size of your
team: karma.  On the subject of “free”,
I’m not suggesting that you work for free, but when you freely give of yourself
and your knowledge, you’ll see a greater payoff, I promise!

Recently,
an agent came to us with a question: she has a client who is looking to sell
his condo.  It’s no longer warrantable,
and the value is around $45,000.  He owns
the condo free and clear, and really just wants to walk away from it netting
$45,000.  The agent knew, of course, that
no bank would lend on this, so she asked us for a possible solution.  We could tell by her body language that she
had already approached a number of our competitors, and they had all, most
likely in a very nice way, told her that it just wasn’t possible citing one or
two of the obvious reasons.  Rather than
joining the chorus of negativity, we offered her this solution:
The
seller could put the condo up for sale for $60,000 and advertise it as a
seller-carryback loan.  He would require
the buyer to provide a down payment of 20%, or $12,000 –
this leaves a balance of $48,000, which the seller now carries as a mortgage
(he acts like a bank).  Are you with me
so far?
The
seller then takes this $48,000 balance and splits it into two notes: the
first-position note is for $29,250 at an interest rate of 10% (I’ll explain how
we arrived at those amounts in just a moment); the second-position note is for
$18,750 at an interest rate of 10%.  The
seller turns around and seeks out an investor who buys notes (or mortgages) and
sells the first-position note of $29,250.
In
the market today, investors who buy notes like these usually want to see a
Loan-To-Value Ratio (LTV) of no more than 65%, and they want the interest rate
to be healthy.  In this case, $29,250 is
65% of the value of the condo, $45,000; 10% interest is something that will
give these investors a reasonable return. 
Any higher LTV or lower interest rate, and it’s likely potential
investors will start vanishing. 
This
solution provides the seller with $12,000 from the down payment from the buyer
of the condo plus $29,250 with the sale of the first-position note to an
investor –
he immediately nets $41,250, which is not quite the $45K he was looking to
net.  Have no fear: we’re not asking him
to settle.  Remember the second-position
note?  Using just simple interest for the
sake of the analysis, the seller would receive a check for a little over $150
each month from the title company on this second-position note.  In just two years, the seller will have
received enough in residual income to get him up to that $45K net mark –
and he’ll continue to receive residual income until that second-position note
is satisfied. 

Wait,
it gets better!  By selling the condo for
$60,000 (using our solution), the agent helps improve the comps for the condo
complex.  In the meantime, she can meet
with other owners in the same complex who are looking to sell and help them,
too –
a growing list of referrals.  Perhaps the
HOA will erect a statue in her honor! 
Our solution does nothing for us –
we make money by writing loans, and this isn’t a loan we can write –
but it was the right thing to do.  While
karma usually gets a bad rap, she’s got your back, too.  Hugs and kisses, karma!

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