by Theodore Hansson
Exactly How Does It
In this article I'll try to explain as clearly as I possibly can how the business of "Brokering Seller-Financed Mortgage Loans" works. I'll show you the step-by-step process from start to finish, and most importantly I'll explain how You make money at this.
It's really not that complicated at all as long as you have the basic understanding.
Let's get on with it!
Sally Decides To Sell
OK let's assume that Sally Seller (the seller) has decided for some reason to sell her house and she puts it up for sale. She may try to sell her house herself or list it with a Realtor. We'll assume, that she goes ahead and lists her house with a real estate agent, like most of us would do in her situation.
Let's further assume that Sally is asking $110,000 for her nice 3 bedroom 2-bath house that's located in an average neighborhood in Anytown USA, that she has lived in for the last 11 years.
A month goes by and she has not gotten an offer on her house. As you know, real estate isn't always easy to sell especially in smaller communities or if the seller is looking for close to full price. So Sally is having a little difficulty selling her house.
Two months go by, but still no offers. Sally is getting a little bit worried and a tinsy bit desperate by now, and wonders if she's ever going to get her house sold.
So after two months on the market without an offer, Sally decides to lower her asking price. She reduces it to $100,000.
Bud Makes An Offer
Two weeks later she gets an offer from Bud Buyer (the buyer). Bud has been looking for a house and he has $20,000 to put down. However, Bud has had some problems with his credit and he hasn't been employed with his current employer long enough to qualify for a regular bank loan, (ouch).
Bud decides to make a full price offer to Sally if he can get her to carry the note (to act like the bank). So he makes an offer to buy Sally's house for $100,000.
However, because he is not able to get a bank loan he proposes the following to Sally.
He says he has $20,000 cash to put down and asks Sally to act as the bank and to carry back a mortgage for $80,000. Bud will pay her 10% on her loan for the next 30 years, which amounts to a monthly mortgage payment to Sally of $702.06.
Sally's #1 goal is to sell her house! She realizes that it's a tough real estate market where she lives and she is anxious to sell her house so she goes ahead and accepts the offer from Bud Buyer. After all it's a full price offer!
It's Time For The
At closing, (a month or so later), Bud Buyer gets possession of the house. Sally Seller gets her $20,000 cash and she also gets a note for $80,000 at 10% interest in which Bud Buyer promises to pay her $702.06 for the next 30 years.
Instead of Bud getting a regular bank loan and paying the bank every month, he will now send Sally a check. Sally is actually acting as the bank in this instance because she carried back the mortgage. This is what's called a "Seller Financed Mortgage" or a "Seller Carry Back"!
Onward. The months go by and everything is fine, Bud pays Sally on a timely basis. He faithfully mails her a check for $702.06 every month without fail.
Sally Is Getting Impatient
Now a year has gone by since Sally sold her house and her financial picture has changed. Sally is getting a little short on money and she wishes that she could have her money now instead of having to wait 29 more years to get all her money from the sale of her house.
Because Bud Buyer has been paying on the mortgage for 1 year, the money he now owes Sally is down to $79,555.30 (from the original $80,000).
Sally thinks, "Boy it sure would be great to have the money right now instead of having to wait all those years".
But Sally doesn't know how in the world she can get her money now instead of having to wait 29 more years.
Here's Where You Come
To The Rescue
Sally doesn't realize that she can sell her mortgage note for cash, or that she can sell a part of it if she doesn't need all of the money right now!
Amazingly, A Lot Of People Receiving Payments On A Note Don't Realize That They Can Sell The Whole Note Or Part Of It !
Their stockbroker isn't going to buy it, and a bank can't and won't buy a privately held note.
Sally Finds You
But lo and behold, it just so happens that she gets one of your letters or she happens to see your ad in the newspaper that you buy mortgages for cash.
(A full explanation of the exact procedure is covered in detail in my course "How to Make a Fortune Brokering Private and Commercial Loans").
Wow! This is exactly what she has been waiting for! Her dreams have come true! There is no need for her to wait 29 more years to get her money, she can actually get her money right now!
So, Sally decides to give you a call. You talk to her and you find out that she needs the money to pay off some credit card bills and she is also thinking about buying a condo for herself. She is tired of renting an apartment.
You ask her for information about her mortgage note that she is collecting payments on and that she is now thinking about selling. You also ask her why she is selling, and what she thinks is a fair price for her mortgage note?
Then, you simply take down some information on your "Mortgage Purchase Worksheet", such as,
- date of the note
- current balance of the note
- the interest rate
- the monthly payment
This is pretty easy stuff too, not complicated at all. I simply need the information in order to make an offer to buy the note.
After you have gathered all the information, you tell Sally you'll call her back shortly after you have had some time to do some figuring on how much money you can offer to pay her for her note.
You Now Have A Motivated
She wants the cash now and you can give her the cash in exchange for the mortgage note.
Now, what do you do next?
That's quite simple my friend! Why,
You Call Or Fax Me, Of Course, With All The Information You Got From Sally!
After I do some figuring, I'll usually give you at least two choices. I'll tell you what the investor can pay for the whole note or what they'll pay for the next so many payments.
For example in this instance I might tell you, the investor will either pay...
$75,000 cash for the whole note or
$14,900 cash for the next 24 payments.
If Sally took the $14,900 it would mean that after the investor has collected the next 24 payments from Bud Buyer the note would revert back to Sally Seller and she would start collecting the payments from Bud Buyer again. The note at that time would be down to $78,521.32.
Your Offer To Sally
Once I give you the figures, all you would have to do is give Sally Seller a call back.
Obviously, you are looking to make some money for transacting this deal. Thus, you will make an offer to buy Sally's note for less than the amount I quote you.
Please Note! The amount I quote you is the amount that my investors are willing to pay for the mortgage note. How much less you quote your seller is strictly up to you. In other words...
I Let You Decide
How Much Profit To Make On Each Deal !
The seller of the note will never be upset with the transaction, because they will never know how much you are making on the deal or how much the investor is paying us for the note. They are only interested in how much cash they can get for their note!
May I suggest the minimum commission should start at $1,000 for each of us. So you would take $2,000 off the quote I make to you.
For example if I quote you $75,000 for a note, you would then offer the seller $73,000, so we would have $2,000 to split.
Of course you will offer the seller less if you want to make more money. If you think the seller may not take the price you offer, simply raise it a bit higher. If the seller says she wants $74,000, you could come back with $73,500 so we would split $1,500. In most cases the sellers will settle for less than what they told you.
Please note that we are not trying to rip someone off here. We simply get a commission for placing the sellers note with an investor. This is exactly the same as a loan company getting points and loan originating fees.
Say the investor was willing to pay $75,000 for the whole mortgage note or $14,900 for the next 24 payments. By talking to Sally Seller you figure that she will sell the note for $70,000, which would give us a profit of $5,000.
So you make her an offer to buy her note for $70,000 cash, or to buy the next 24 payments for $12,000 cash (a profit of $2,900).
If Sally accepts the partial, it means that Sally gets $12,000 cash now. The balance of her mortgage now is $79,555.30 and when it reverts back to her in 2 years (after 24 additional payments) the balance of the note will be $78,521.32.
Do you see what that means? It means that Sally gave up $1,034 ($79,555 less $78,521) to get $12,000 now!
That's a pretty good deal for everyone involved!
At this point you have also explained to Sally that she can get $70,000 cash right now from you instead of having to wait 29 years to get all the money back from Bud Buyer..
Sally Wants To Sell
Sally decides, "All right I'll sell it for $70,000 if I can get the cash now, because I need the money right now and I don't want to wait 29 year to get all my money back". She figures she would rather have $70,000 right now than to wait all those years to get her money.
Because of the time value of money, a dollar today is worth a whole lot more than it will be worth in 29 years!
After all, if I owed you $20 but I didn't have to pay you back for 3 years, but I gave you the choice of getting you $20 back in 3 years or paying you $15 right now. Which one would you take?
You would probably take the $15 right now (taking a discount of $5) rather than worrying about being paid in 3 years. That's the "time value of money".
After Sally accepts your offer, the next thing you do is simply fax or mail me some forms. (Again, this is explained fully in my course). You are then ready to start on your next deal.
Remember, you never have to meet anyone in person or even see the property. Everything can be handled either by phone, fax or e-mail.
The seller doesn't need to put up any money for the title work, appraisal or closing costs. I will cover all those expenses.
I'll take it from there. I'll set the process in motion and see to it that a credit report is run, the appraisal is ordered, the title search is done, etc.
We're Ready To Close
The Deal -
And Give Sally Her Money
So within a few weeks all the necessary steps should have been taken, the appraisal should have come back, title report should have been run, etc. If Sally Seller has been up front and everything checks out OK, we are now ready to give Sally her money.
At closing Sally Seller gets her $70,000 cash. Bud Buyer will now pay the investor instead of Sally every month for the next 29 years. I'll pay you 50% of the profit, so immediately...
You Would Get A Check For $2,500.00!
Not too bad for a few hours of your time!
As you can see this is a win/win situation for everybody that's involved. We did Sally a favor by giving her the cash she wanted and we made a profit.
You made a profit for doing your part in finding Sally Seller and I made a profit for doing my part by coming up with the money to make the whole thing work. Everybody wins and everybody is happy!
"You Don't Have To Get It Perfect...
You Just Have To Get It going!"
About the Author
|Article by Theodore Hansson of Theodore Hansson Co. Theodore has helped 1000's of ordinary people succeed in their own home-based business, brokering loans. Visit him at http://www.thansson.com for FREE "how-to" information as well as a free subscription to his newsletter "Loan Brokering Tips & Tricks".|
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