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Slide1
Seller Financing and Notes in The Dodd-Frank Era
Stop Discounting Real Estate
!
Sell Fast with Unlimited Benefits and Maximum Sales PricesSlide2
Investor PresentationPhone: 480-831-5067
support@pinnacle-investments.com
Slide3
The Bank of YOU! Be The Bank!
The Bank Wins!Slide4
The Seller Finance Step by Step Process
Buyer, Seller Agrees on Seller Financing
Hire Pinnacle Investments
Agree on Terms & Sign Papers
Move into new Home
Make Monthly payments to Seller
Everyone
Wins
Seller Sells note for cashSlide5
Slide6
Source: Westcourt Funds
Optimism
Excitement
Euphoria
Denial
Fear
Panic
Despondency
Depression
Hope
Optimism
Point of maximum risk in investment
Point of maximum opportunitySlide7Slide8Slide9Slide10Slide11Slide12Slide13
4 million renters want to buy. Can they?Diana Olick | @diana_olick
Thursday, 13 Mar 2014 | 9:03 AM
ET
CNBC.com
Zillow : More Than 4 Million First-Time Buyers Want to Enter the Housing Market in 2014, Buoyed by Strong U.S. Housing Confidence
03/20/2014 | 11:55am US/Eastern
Recommend:
0
Millions of renters say they really want to buy a home this year
By
Les
Christie
March
13, 2014 4:54 AM
More Than 4 Million First-Time Buyers Want to Enter the Housing Market in 2014, Buoyed by Strong U.S. Housing Confidence
Homeownership Aspirations Among Current Renters Highest in Markets Hard-Hit by Housing Recession, According to Inaugural Zillow Housing Confidence IndexSlide14
Americans Shut Out of Home Market Threaten Recovery: MortgagesBy Prashant Gopal and John Gittelsohn Mar 5, 2014 7:08 AM PT
Say Hello to the Lenders Recession
March 7, 2014
Mortgage
Demand for Mortgages Plummets, But It’s Not a Winter Storm, It’s More of an Ice AgeSlide15
Solution Always is Seller Financing
Seller
Becomes the Bank
Money Exchanges Hands - Down Payment
Buyer
Signs
Promissory
Note and Security Instrument
Remaining
balance
is carried as a loanSlide16
1970’s and 1980’s Seller Financed Transactions Dominated MarketSeller Carry Market Cooled With Continued lower interest rates over 30 years and easy loans.
Seller Financing HistorySlide17
Tenuous Financial MarketsEver Tightening Number of Qualifying Buyer Pool
Slipshod Appraisals
Increases Flexibility Of Transactions
Increase Yield Over Traditional Investments
Avoidance of capital gains taxes
Seller Financing TodaySlide18
Requires licensing for consumer credit transactions
Licensee is mortgage loan originator
Must register through Federal mortgage licensing system
Sellers
offering
seller
financing “may”
need to be licensed
Real estate
brokers arranging
a
loan/ negotiating terms need a license
Regulatory Issue
SAFE Act - 2008Slide19
Disclosures required for sellers/brokers involved in certain seller financed deals
Amends TILA to require disclosures for seller financed transactions
Sellers
have to meet very strict guidelines to be exempt from disclosure
requirements
Brokers have the same standards for exemption as the
SAFE Act
but must be
careful with compensation
Dodd Frank Financial
Reform Act - 2010Slide20
SELLER FINANCE CONSUMER EXEMPTIONS UNDER DFA:One (1)
OR
three (3) properties in any 12 month period
WHEN:
(1)The seller is a natural person.
(3) or, Corporation
, LLC, partnership, trust, estate, etc
.
(1,3) The seller did not construct the property
(1,3) The financing has a fixed rate
and
does not adjust for the first 5
years and No
negative amortization
(3) The borrower has a reasonable
Ability To
R
epay
the loan
(3) N
o Balloon Payment
ALL OTHER SCENARIOS REQUIRE A SFC MLO
ExemptionsSlide21
Large Growing Market for Buyers With Less Than Perfect Credit After The Foreclosure CrisisMarket Share Increases In Rising Interest Rate Environments
Perfect For Properties Not Qualifying For Institutional Financing
Retiring sellers need steady reliable income
Seller Financing FutureSlide22
2010 California TransactionsSlide23
Seller Financing Myths
Only desperate people carry notes
Only bad properties require seller financing
“I
need all cash at the closing so I can’t carry the
loan”
Only unqualified buyers want seller financing Slide24
Require A Down PaymentCheck Credit
Assure Regulatory Compliance
Possibly Require A Personal Guarantee
Document Pay History
Seller Financing UnderwritingSlide25
Sellers Benefits IncludeSeller saves
on closing
costs, repair credits
and
feesParties
negotiate
interest
rate, repayment schedule, and other conditions of the
loan
Defers
capital gains
taxes
Keep equity at work at interest rates higher than the bank is
paying and more than historical appreciation rates Slide26
Seller Benefits Continued
If
the buyer stops paying, the Seller keeps everything and gets the property back
If
seller or heirs need money, they can sell all or part of the note for cash
Fast Sale and Maximize
the sales price by offering terms
Adds liquidity to properties that don’t qualify for bank financing
The
property could be sold “as is” so there would be no need for repairs Slide27
Seller Financing Strategies
AITD (Also Referred to as a “Wrap”)
Title Holding Trust
Stand Alone Second
Land Contract
Lease Option
Lease Purchase
Contract for Deed
Purchase Subject ToSlide28
Sample Note
$420,000 Purchase
Price / Owner Occupied SFR
80% Note
$
336,000 Face
Amount
8.22% Note Rate Slide29
Why? This Makes Sense For BorrowerThe up front FHA insurance is 1.75%
Loan origination is 1-2%
Down payment is 3.5%
That is a 6.25-7.25 minimum investment in down payment on an FHA loan
On top of that there's a 1.35% add to the rate over the life of the loan.
So if interest rates are 4.5% the effective rate on
FHA will be 5.85%Slide30
A Creative Solution EqualsA Better, Safer, Smarter Sale:
$2519.94 in Monthly Income
$139,196.40 in Total Income Over 60 Months
Potential $40,000+ Increase in Sales Price
Potential Savings of $12,000+ Property Repairs/ or Credits
Potential Savings of $12,000+ in Buyer Closing Cost Credits
Potential Savings of 33.33% in Capital Gains Taxes
No More Taxes, Tenants, Termites or ToiletsSlide31
Most Current Seller Financed Investor DealSlide32
Repair EstimateRepair Estimate for
New
roof: $16,000
Kitchen: $10,000
Bathrooms: $12,500
Ext Paint: $5,500
Stucco: $17,000
Landscaping: $3,500
Int
Paint: $6,500
Int
Texture: $
4,600
Elec
Panel: $
2,500
Carpet
: $3,900
Wood Flooring: $3,400
Bathroom Tiles: $1,600
Dumpsters: $2,500Demo: $2,000
Doors: $1,850Contingency: $4,000
Total: $97,300Slide33
Maybe a Wholesale Deal on “Steroids”Listed Price $350,000
Investor offer accepted by estate@ $350,000
Consumer buyer offer
$437,500 / 30% down
$306,250 @8% 30/5Slide34
Buy and Hold or Flip: That is The QuestionNew investor $350,000
Flips to $437,500 buyer
30% down
Note for $306,250 & $218,750 in the deal
Payment $2247.15
60 month IRR 17.40%
Net $222,320
12 Month IRR 44.77%
Net $114,464
Sell the note 3 months
3 Month IRR 152.59%
@12% yield and make $84,491Slide35
The Bank of YOU! Be The Bank!
The Bank Wins!Slide36
The Seller Finance Step by Step Process
Buyer, Seller Agrees on Seller Financing
Hire Pinnacle Investments
Agree on Terms & Sign Papers
Move into new Home
Make Monthly payments to Seller
Everyone
Wins
Seller Sells note for cash