Mortgages: A way to earn 10% or more on your money

Buy-Sell-Finance

A way to earn 10% or more on your money

Mortgages:

You buy a home for cash and then re-sell it, (acting as your own real estate agent), and carry the note for the new buyers.

First you let everyone know you are looking for a home to buy for cash. Call all the real estate agents in the area where you want to buy and let everyone you meet know you are a buyer. Look for a good, clean, well-maintained house in a working class neighborhood. When you find a prospective property offer 10% under market price, or less than the appraised value (See the real estate clauses at the end of this report.). You want to buy a house for 10% less or a minimum of $10,000 less than the current appraised value. After you buy the house put up a sign "For Sale by Owner" "Owner Financing". You re-sell the home for the full-appraised value. You carry the note for the buyer at 8% to 14% interest with a 5% down payment.

Will people sell for 10% off the price? Yes! Cash buyers are hard to come by. There will always be someone needing to sell now and they will sell at the discounted price. It can take a while to find the right deal. Be patient and keep looking.

Lets look at what you accomplish with this method. You have a 8% to 10% return on the safest loan you can make, a real estate secured first mortgage. You have more than 5% of your cash back. You saved the re-sell sales commission. You collect 8% to 10% interest on the full selling price, not just on the cash you have invested.

Example: You buy a home worth $100,000 for $90,000 cash. You sell the home for $100,000 with 5% down. You carry the 20 year note on $95,000 payable $916.77 per month principal and interest. (When I carry a real estate note, I collect monthly for the next year's taxes and insurance, as the buyers may not have the discipline to save the money themselves. I like to control things.) Because you only have $85,000 loaned out, after the down payment is accounted for, you get an equivalent rate of return of 11.7% annualized. That is 3 or 4 times the going CD savings rate.

Will people buy at 10% to 14% interest? Yes! absolutely, because of the low down, low closing cost, and easy qualifying. As renters they are not getting any tax advantages, they are not building equity, and they have no pride of ownership. People who buy homes feel they are getting ahead and will take much better care of the house.

What if I need money in the future? You can always borrow against the real estate note you hold. Plus you will be accumulating the payments you are receiving each month. You can always sell the notes on the secondary market.

Real estate purchase contract clauses: I use these two clauses on purchase contracts when I buy property to give me the option of backing out of the deal if a price, or property condition problem arises.

1. This purchase is subject to an inspection by, (your home inspectors name here), that is satisfactory to the buyer.

This will give you a way out of the deal if the home inspector advises you of any problems.

2. The purchase price will be $(xxxxx) or 10% less than the appraised value, which ever is less.

This assures that you are getting a deal on the price. Cash buyers should insist on a deal. If your real estate agent tells you that this cannot be done, get a new agent.

Paperwork for your buyers: Any good attorney can draw up a mortgage note for you for a few hundred dollars. The attorney will help with the paperwork. Spending the money on the lawyer will give you piece of mind knowing the paperwork was done correctly . The title company, or your attorney will record the liens.

Important finance Clause: Add a clause to the note that states that if the buyer pays off the note during the first five years they will have to pay you a 5% pre-payment penalty. You do not want the property paid off as the reason you carried the note was to get the steady income.

What if the buyers don't pay? If your buyer does not pay you, foreclose on the loan and resell the home. You will get another down payment and start all over. I have only had to foreclose one time and I made money on the deal. Have your attorney do the paperwork and document the condition of the home as well as the cost of getting the home ready to re-sell.