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Hassle-free Passive Income from Seller Financing (part 1)
By David Campbell On 01/13/2011 · Leave a Comment · In Newsletter
The housing trend in Dallas is clear. The population boom is creating a housing shortage, but home buyers can’t get conventional financing. Building apartments for people to rent is a great solution for real estate developers like me, but how can average investors turn this situation into a profitable outcome for their family? Your answer might be “BECOME THE BANK”!
Here are three common stories in Dallas:
PERSON #1 just moved to Dallas from California because his company relocated and he chose to follow. He has great income, but he just lost his over-leveraged California house through foreclosure or short sale. The result is bad credit which prevents him from buying a house.
PERSON #2 felt the pinch of the economy and was unemployed for a few months. He burnt through his savings and got behind on his bills. He finally found a new job, caught up on his bills, and even put a few dollars in the bank but his credit is still shot which prevents him from buying a house.
PERSON #3 moved to Dallas from Mexico. He is hard working, employed or self-employed in the service industry, and he has thousands of dollars tucked under the mattress in his apartment. He makes enough money to buy, and he has a down payment, but he has no credit profile and his income is hard to document
All three people share the following characteristics:
- They WANT to buy a house.
- They can AFFORD to buy a house.
- They can’t get a BANK LOAN to buy a house.
- They are WILLING and ABLE to pay a high rate of interest because they have very few financing options available to them.
A private investor can step in to fill the void created by today’s tight lending conditions. This usually translates into seller financing. Here is a case study:
- Investor buys a house for $125k with $25k down and $100k bank loan at a 5% interest rate.
- Investor sells the house to a home owner (one of the hard to finance people described above) for $130k with $10k down and a $120k seller financed “wrap note” at an interest rate of 8%. The investor makes a small profit at the point of sale by reselling the house for top dollar (remember the buyer has very few choices).
- The investor originally invested $25k and “got back” $10k from the buyer, so the investor’s net investment is $15k (we’ll assume the hard to finance home buyer pays all of the closing costs for both transactions).
- The investor’s principal and interest payment on his 30 year $100k mortgage is $537.
- The investor’s principal and interest income from his 30 year $120,000 seller financed wrap note is $881.
- The investor’s cashflow is $344 / month of which $42 represents the amortization of the investor’s $15,000 investment and $302 is PROFIT!!!
- $302 monthly profit = $3,624 annual profit
- The investor’s return on investment is $3,624 divided by $15,000 which is 24% annualized.
Sound complicated? Well, it’s not! Here’s how YOU can do it:
- Our company identifies a financially qualified but hard to traditionally finance buyer (occupant).
- Our company matches the buyer with an investor willing to owner finance.
- Our company helps the investor and the homeowner locate or build the perfect house to be financial “partners” on.
- The investor buys the house from our company.
- The homeowner buys the house from the investor.
- The homeowner makes payments to a third party note servicing company.
- The third party note servicing company collects monthly payments from the buyer, pays the investor’s mortgage, and distributes the PROFIT to the investor.
- The note servicing company handles all of the annual paperwork reporting requirements.
- Our company handles all of the details for the process with the goal of making the investor’s experience HASSLE-FREE!
Yes, this seller financing strategy would work in other markets as well. While Dallas is our specialty, we’re happy to help you implement this strategy in other cities as well. If you are interested in participating as an investor or a buyer in a hassle-free owner finance transaction, please send us an email to learn more.
To your success!
Professional Investor / Developer / Financial Mentor
Founder of Hassle-Free Cash Flow Investing
Part of our series of articles on investing in Dallas
Tagged with: all inclusive trust deed • arbitrage • cash flow • cashflow • creative financing • dallas • income • investment philosophy • investments • owner financing • passive • passive income • real estate • rental • rental property • seller financing • wrap around deed of trust • wrap mortgage