NationStates Jolt Archive

Wanted to ask some of the older NSG audience that remember the time when there were many owner carry contracts. What is your opinion on them and have you ever been either the owner or the buyer in such a situation?

The reason I am asking this is to actually boost income off a home we are currently building to sell. We plan to break ground on a second one in two months. I know a bit about them because I am old enough to remember when there was a time they were fairly common. Mostly as seconds though. However talking with a couple of friends of mine and business partners we were seriously contemplating using them to increase profits. So what is your opinion on them and if you never have used one would you?

Also want to add that I am a 15 year veteran of being a landlord of many properties and have more then enough experience in this department to know the ups and downs of that situation.

do you mean a land contract where the seller carries the "mortgage" and gets payments over time?

do you mean a land contract where the seller carries the "mortgage" and gets payments over time?

exactly.

ive done both in my day but i dont see why you would want to. how does it boost your profit?

ive done both in my day but i dont see why you would want to. how does it boost your profit?

Well consider this and you know what I am talking about. When a typical home buyer gets a mortgage from a lender your loan is front end loaded with interest. Basically you pay little principle and a lot of interest. If one was to carry the contract for an individual on a $200,000 piece of property at 7% on a 30yr note your payment is roughly $1340 +taxes and insurance. Most of what you are paying for the first 5 years of the loan is nearly all interest and very little principle. As a loan ages they pay out more to principle then interest. If I as the builder/owner of the property can carry the mortgage then that interest goes to me. Typically a home buyer refi's within 5 years lately. Then when that refi takes place I receive my whole principle and make money on the interest until that point. So if over a course of 12 months at $1340 = $16,080. the vast majority is interest payments. Money in the pocket. So If I build a home at a cost of $100k as a contractor and turn and sell it for $200 I am making approx 15% return on my 100k per year the first years of the loan. If they refi then I get my 200k plus I made that roughly 15% return for the years they were paying on it. You could even write a clause in there with a 5 year balloon which requires them to refi. If you charge a higher interest rate you make even more. Add one percent to the loan rate and you make roughly $17610 per year.

Capitalist swine!




EDIT: Can you lend me some money?



:)

I know someone will say if you sold it at 200k and invested it at 8% you would make the same amount. However with the current situation in the loan market and the uncertainties with mortgages looming I figure this will sell our homes faster and at a premium over traditional lenders. The costs to sell a home with an agent and the regular fees associated with that transaction your profits are eaten into very quickly.

Capitalist swine!




EDIT: Can you lend me some money?



:)

Would you like to buy a house?! :D

Would you like to buy a house?! :D

Only if you'll buy it back on mortgage, my interest rates are competitive....with Botswana :)

For instance, the Bank of Botswana's (BoB) current bank rate is 15.00 percent while commercial banks lend to depositors at 16.50 percent.

Only if you'll buy it back on mortgage, my interest rates are competitive....with Botswana :)


no, and


lol, that is an interesting fact about Botswana I did not know. :)

i see what you mean but you are also taking the risk of the loan. if they dont pay, you have to spend money to repossess the property and evict them. if they havent maintained the property properly it will almost certainly be your loss. (you cant get blood out of a turnip)

if you dont need the lump sum, i suppose its as good a way as any to bring in some income from it.

im not sure what kind of person would prefer a private loan to a bank/mortage company loan.

but anyway, like all real estate transactions its well covered by contracts and laws. if you find a person you trust who wants this kind of loan, your lawyer can draw up a very reasonable contract that is fair to everyone. all the paperwork is managed by an escrow company--they keep the deeds and take the payments from the buyer.

Well I know a fairly quick way to legally evict someone if need be. Had to do it many times. I suppose repossession would be a bit more intricate but basically the same as long as it is spelled out in the contract. Of course a real estate lawyer would draw it up with all the clauses I needed. However the one thing about having to repossess a property would be it's increased market value. Assuming that any damage does not offset the increased value to much. Plus

you have so much cash that you can build a house on spec without a loan of your own and you can sell it on contract without needing the lump sum back in order to build the next place?

are you sure you shouldnt just retire and spend the time on the beach or something?

no, and


lol, that is an interesting fact about Botswana I did not know. :)

Neither did I - I googled to fit my post.

My one question would be: what legal fees do you need to pay in terms of carrying a contract? I'd imagine a bank offsets these costs through bulk.

Don't you need certain legal processes to go through before you can be a lender?

if you don't need the lump sum, i suppose its as good a way as any to bring in some income from it.



We do not need the cash right away. It would be sitting in another investment anyway. I am having a problem finding decent returns as it is and this would be a decent return with less risk then the current stock market in my opinion. Some may disagree but I have made the vast majority of my money in real estate over the years.


I'm not sure what kind of person would prefer a private loan to a bank/mortgage company loan.

.


Someone that wants to save money on getting a loan. Far less costs then acquiring a traditional mortgage. Also I can lend up to 100% if I wanted to, a business owner that needs a stated loan, a divorcee with crappy credit but a decent job. There are many reasons to be honest.

Neither did I - I googled to fit my post.

My one question would be: what legal fees do you need to pay in terms of carrying a contract? I'd imagine a bank offsets these costs through bulk.

Don't you need certain legal processes to go through before you can be a lender?

Well not much really. Having a real estate lawyer draw up the contract. You are only talking in the hundreds for that. Then the title fee's and filing fee's which are not to bad. I figure less then a thousand. Consider a cost of a traditional loan. That can be all over the board. You have upwards of $4000-$6000 on a average loan in costs for the borrower.


As far as certain legal processes you do not need to be licensed to carry a contract on your own property.

It's done quite often with older homes in this area. Usually the buyer has to have a down payment large enough that he doesn't want to lose it. Of course if he fails the contract is written to give the owner full title even if it's in the 29th of 30 years. Of course if that situation comes up the buyer will sell the house and pay off the note rather than losing everything. But there are times when the market is weak and the buyer can't find another buyer so he gives it back. Figures the payments were just rent.

It's really a win-win thing. Especially if you are going to put the money into building another house. You just ask for the difference in interest between what the bank gives and the bank gets. You build your next house without borrowing more from the bank and the buyer gets cheaper interest than the bank would ask. And as seller you set the terms. Make sure you get a good lawyer.

was there something else you were wondering about the process?

Do it then - I just wonder as to the hassle of doing this all yourself but then the best kind of money made in this world is through doing the things other's cannot be hassled to do.

I'm looking at buying my own house, first time buyer, though not in the US, I may draw on you time to time for things to look out for.

If you see a post with the title: Hey Marrakech, help me out - please respond :)

Do it then - I just wonder as to the hassle of doing this all yourself but then the best kind of money made in this world is through doing the things other's cannot be hassled to do.

I'm looking at buying my own house, first time buyer, though not in the US, I may draw on you time to time for things to look out for.

If you see a post with the title: Hey Marrakech, help me out - please respond :)

Well I may have a better understanding then the average person on real estate. As for asking for help I would be more then happy to lend my advice to you or anyone else that asks. Also want to point out that there are many older NSG posters that could just as easily give good advice on home buying. There are common traps that we all deal with.

was there something else you were wondering about the process?

Just was asking personal experiences. Sometimes just letting it out to the general audience will bring a perspective that I had not thought of. That is my basic reason for posting about it.

It's done quite often with older homes in this
It's really a win-win thing. Especially if you are going to put the money into building another house. You just ask for the difference in interest between what the bank gives and the bank gets. You build your next house without borrowing more from the bank and the buyer gets cheaper interest than the bank would ask. And as seller you set the terms. Make sure you get a good lawyer.

Actually we are not borrowing the money from a bank. We are using cash to build with. I learned it saves a lot of money and hassle doing it in that manner. The wife and I on average save 50% of our net income every year. So we have saved a fairly large amount and I typically invest it in stocks and bonds or buy rental homes for our portfolio. Since stocks and bonds produce a low return from my experience I was looking at a different avenue for a higher return.

If you look at it as an investment, it offers very good returns but with a commensurate level of risk. If you can find a sufficiently stable buyer who will be able to service the loan properly for the long term, go for it.

The question I have is why are you looking to sell rather than using it as a rental property? Rental prices have been eroded by the ease of purchasing but, with mortgage terms becoming more stringent, that imbalance will likely come back to equilibrium soon. There is even the chance that if the market over-reacts (as it is want to do) then rentals will become more profitable.

Thats my view at least. I've not spent much time actually analyzing it, so it is just based on my impressions and back of the envelope calculations as it were.

I know someone will say if you sold it at 200k and invested it at 8% you would make the same amount. However with the current situation in the loan market and the uncertainties with mortgages looming I figure this will sell our homes faster and at a premium over traditional lenders. The costs to sell a home with an agent and the regular fees associated with that transaction your profits are eaten into very quickly.
I guess you need to add in the risk from a default. I realize you would get possession of the house again, but then there are the expenses to evict and the repairs after the eviction. Probably some more that I haven't thought about.

If the risk is low, this sounds like a decent move.

The question I have is why are you looking to sell rather than using it as a rental property? Rental prices have been eroded by the ease of purchasing but, with mortgage terms becoming more stringent, that imbalance will likely come back to equilibrium soon. There is even the chance that if the market over-reacts (as it is want to do) then rentals will become more profitable.

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We were planning to sell them straight out. However after doing calculations I figured I would be ahead with a owner carry.

As far as rental rates going up. You are exactly right. The last time this type of thing happened rents rose fairly quickly due to the equilibrium swinging away from buyers.