I guess this is the big debate regarding RE investing. I'm actually weighing the pros & cons of both with both House #1 and House #2. When doing dome calculations, in one scenario I figured I could CF positive $250/mo+ for the life of a loan. Of course, the immediate pro would be an (almost) predictable amount of CF each month for a very long time. Another benefit is the actual net profit made. For example, a $30,000 loan amortized over 30yrs with an 11% rate would put $286 in my pocket every month. I SERIOUSLY doubt it would go the entire 30yrs, but if it did, I would stand to make: $286 x 12 x 30 = $102,960. The downsides, though, are plenty ... First, the $30,000 is frozen. I can't touch it (outside of some creative techniques). Next, I run the risk the holder of the note defaults, and I have to eat it. Also, while my rate should always outpace inflation, it will be reduced by it every year. IOW, if I charge 11% and inflation runs an average of 3%, I am theoretically only making 8% on my money. Of course, there are 100's of other variables to consider as well. For example, the money is actually equity tied into a property and not just cash I have lying around. If I decided to sell off the property and pull all the cash out, I'd actually only have about $20,000 in my pocket - not the $30,000 in "phantom" cash (i.e., equity position). However, I could always sell off the property and use the $20,000 in some other investment that would generate returns exceeding 11%/yr. Decision, decisions, decisions.
If anyone hasn't guessed what I'm thinking of doing it's partial seller financing. The buyer would buy the house, put down some money, pay off my loan with a new first, and I'd create a new second note for the balance. Just another option I'm thinking about.
I'm actually trying to get hold of a local RE attorney who specializes in creative financing techniques. He was on vacation a couple weeks back, and was supposed to be back now. I hope to get an idea of what options I have available for me and which one would be the best fit for my situation.
Subscribe to:
Post Comments (Atom)
2 comments:
You could also take the note, hold it for a year or two to establish a good payment history, then sell the note. You'll get cashflow up front, then cash later. Not as much as the prinicpal remaining on the note, but it will be a lump of cash.
Good point, Shaun. I am still running different scenarios, and will start posting a "For Sale" ad in various outlets this week, offering seller financing as an option.
Post a Comment