Seller carrying a second note for their equity
Many times we will buy a property and not give “cash for Equity” but give a “note for equity” and “have the seller carry a second”.
I don’t like paying retail for property, and I don’t like going over 90% of comps for a sales price.
Why is that? Well if you have to sell and have to sell it quickly, you need to pay an agent to get it on the MLS, and the cost to do that is about 8 to 12% of the value of the property. That’s before you make any money on the sale.
So I don’t own 100% of the value of the property, I own 90% of the value of the property, with 10% of the value of the property used to liquidate.
Bankers use the same attitude.
That said, if I have a really good property and good condition and good location, and I can buy it with:
- sub 2 and a note, take over payments on the 1st and give a 2nd note with no payments for 5 years
- wrap mortgage and make the payments so that I can rent the property out with a cash flow
- Land contract and make the payments so that I can rent the property out with a cash flow
These are all examples of having the seller take a second for their equity.
