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Real Estate Investing > Owner Finance > Flashcards

Owner Finance Flashcards

1
Q

Owner financing requires that the seller take on

A

the default risk of the buyer

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2
Q

Owner financing can provide extra

A

income to the seller in the form of interest.

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3
Q

Sometimes, owner financing is known to help

A

a property sell more quickly in a buyer’s market.

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4
Q

Owner financing is most common in what kind of real estate market?

A

A buyers market

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5
Q

Owner finance can offer the seller

A

monthly cash flow that provides a better return than fixed-income investments.

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6
Q

An owner-financing deal should be facilitated through a

A

promissory note

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7
Q

The promissory note outlines

A

the terms of the arrangement, including but not limited to the interest rate, repayment schedule, and the consequences of default.

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8
Q

The owner(seller) also typically keeps the property title until

A

all the payments have been made to protect himself against default.

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9
Q

In a wrap around, Instead of applying for a conventional bank mortgage

A

the buyer signs a mortgage with the seller and the new loan is not used to pay off the seller’s existing loan.

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10
Q

Wrap-around loans can be risky for sellers since

A

they take on the full default risk on the loan.

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11
Q

Alienation clauses are common in most mortgage loans, which often prevent

A

wrap-around loan deals from occurring.

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12
Q

A wrap-around loan structure is used in an owner-financed deal when

A

a seller has a remaining balance to pay on the property’s first mortgage loan.

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13
Q

A wrap-around loan takes into account the remaining

A

remaining balance on the seller’s existing mortgage at its contracted mortgage rate and adds an incremental balance to arrive at the total purchase price.

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14
Q

In a wrap around, generally, the seller will want to negotiate the highest possible interest rate in order to

A

make payments on the first mortgage and also earn a spread on the deal

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15
Q

What are the types of acquisition transactions

A
  • Cash(cash, private or institutional loan
  • Seller Financing(buying on terms)
    With debt
  • Subject to(taking over payments on the underlying lien)
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16
Q

Owner Finance Documents

A

Deed - Ownership
Note - Terms of loan
Deed of trust - Security

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17
Q

Wrap documents

A

Deed
Seller > Investor > Buyer

Note
Investor
Buyer > Investor

Deed of trust
Investor
Buyer > Investor

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18
Q

Seller finance documents

A

Deed
Seller > Investor > Buyer

Note/Deed of trust
Buyer > Investor

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19
Q

Subject To Documents

A

Deed
Seller > Investor

Note
Seller

Deed of trust
Investor > Seller

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20
Q

Benefit of someone giving me money

A

Make 6% interest rate collateralized by real estate(18 times more than a CD rate)

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21
Q

Any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferring title to property.

A

Deed

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22
Q

Types of Deeds

A 
General Warranty 
Special Warranty
Quitclaim 
In lieu of Foreclosure
Trustee’s 
Sherrif’s
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23
Q

General Warranty Deed

A

warrants ownership forever

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24
Q

Special warranty deed

A

Seller warrants during a period of ownership

Often, the special warranty deed is issued when the real estate is sold in a tax sale.

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25
Q

Quitclaim Deed

A

Seller conveys whatever interest they may have in the property

grantor inherited the property, but wants to sell it for the cash, she doesn’t want to guarantee something that cannot be known with certainty, and, thus, to limit her liability, she sells only her interest in the property — whatever it is

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26
Q

Deed In Lieu of Foreclosure

A

Seller conveys ownership to lender to avoid foreclosure

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27
Q

Trustee’s Deed

A

Trustee warrants title thru foreclosure

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28
Q

Sheriff’s Deed

A

Warrants title thru foreclosure

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29
Q

Encumbrances

A

A burden, obstruction, or impediment on a property that lessens its value or makes it less marketable

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30
Q

What are some encumbrances

A 
Purchase money mortgage
Unpaid taxes
Mechanics Lien
HOA Lien
Child support lien
Reverse mortgage
Civil Judgment
Hospital Lien
Criminal
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31
Q

Role of title company

A 
Intermediary 
Manages legal docs
Collects/Disburses money
Provides title policy
Records legal docs in the county
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32
Q

Process of RE transaction

A 
Purchase contract signed 
Inspection
Appraisal
Underwriting
Closing
Recording
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33
Q

What does a mortgage payment include

A

PITI
P I - Principal and Interest
T - Property taxes
I - Homeowners insurance

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34
Q

Fixed Rate Mortgage Loan

A

Interest rate that stays the same over the term of the loan

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35
Q

Adjusted Rate “Arm”

A

Interest rate adjusts over the term of the loan

36
Q

Interest only

A

only includes interest payments that doesnt include principal payment

37
Q

Negative Amoritization

A

Payment is less than the interest earned, causes the principal balance to increase each month

38
Q

Prepayment penalty

A

Earned if paid prior to term

39
Q

Ballon payment

A

Outstanding principal payment is due and payable on a given date prior to full term

40
Q

Mortgage escrow account

A

An account separate from the mortgage account where deposit of funds occurs for payment of certain conditions that apply to the mortgage usually property taxes and insurance

41
Q

Mortgage escrow account includes

A

Property taxes
Homeowners insurance
- Paid annually on the day of purchase
Private Mortgage Insurance

42
Q

Why is it important to collect the Escrow Analysis Statement from the seller once we get the property under contract?

A

Shows the monthly mortgage payments we will be collecting and paying

43
Q

What are some advantages for the seller to work with us?

A 
No closing costs
Debt relief 
Sell quickly/as is 
Rebuild credit 
Landlord issues
44
Q

Buying houses that need repairs is okay as long as

A

We can adjust the sales price to account for the condition or repair that is needed

45
Q

Deed of Trust

A

agreement between seller and investor. Trustee holds property until borrower pays off the debt. Investor keeps title to the property and maintains full responsibility for the premisses

46
Q

PITI

A

Principal
Interest
Taxes
Insurance

47
Q

Debt to income Declaration(DTI)

A

If you can prove that you’re not responsible for payments and you show 2 payments, then it will come off the debt to income ratio

48
Q

What % can you get in cost segregation in your first year on a property?

A

Up to 50%

49
Q

For every 100$ net cash flow, how much can be charged in assignment fee?

A

2k

50
Q

When buying a deal, what are some of the benefits you get

A

Appreciation, Cash Flow, Depreciation, Principle Pay Down, Leverage, Hedge Against Inflation

51
Q

How do you calculate cash on cash return

A

Annual Money Received(Cash flow, rents, etc) / Money put in(Private, Personal, Commercial)

52
Q

3 Reasons why a seller wont sell on seller finance

A

they don’t understand
need cash now
not motivated

53
Q

What are the 7 steps to an entry fee

A
  1. ) Cash to the seller =
  2. ) Arrears, liens etc =
  3. ) Cost of acquisition =
  4. ) Closing cost =
  5. ) Renovation =
  6. ) Maintenance =
  7. ) Marketing =
54
Q

What are the 4 pillars

A

Motivation
Timeline
Price
Condition

55
Q

What are the top 3 things an acquisition manager needs

A

Training
Examples from other people
Feel a culture of belong other than just a job

56
Q

What to say to wholesalers when they ask what i do

A

We are long term investors and we have negative cash flow on all our deals. We always spend more money than we make at the beginning because we are in it for the long haul

57
Q

How much is an air bnb management cost

A

20%

58
Q

Appraisers more often than not will

A

stay in the same Area and go back in time, then leave the area within the current time

59
Q

For multifamily high demand high appreciation areas are

A

calculated by a multiple of 1% of the purchase price

2300 in rent = 230k pp

60
Q

For multifamily low appreciation low demand in areas the multiple goes by 2%

A

calculated by a multiple of 2% of the purchase price

4600 in rent = 230k pp

61
Q

What should you do when comping a property’s build date

A

Stay in the same build generations

62
Q

What are the 5 things you need to do a loan mod

A
  1. ) application (every lender has their own) 2.) income docs
  2. ) bank statements
  3. ) tax returns
  4. ) 4506c (can pull transcripts)
  5. ) hardship letter
63
Q

If seller in bankruptcy

A

Judge has to approve sale

64
Q

What will kill a loan mod?

A

a vacant prop w/ utilities turned on

65
Q

2 types of foreclosures

A

Sheriff sale foreclosure / trustee foreclosure

66
Q

How many steps are there to Rapport building

A

7

67
Q

What are the steps to building rapport

A 
Show desire to understand 
Speed
Matching rhythm
Empathy & compassion 
Active Listening 
Genuineness 
Paint a pic of Pain Strength and my support
68
Q

How many parts are in the Sandler submarine?

A

6

69
Q

What are the 6 parts of the Sandler submarine?

A 
Building rapport
Up front contract
Pain
Budget
Decision
Fulfillment
70
Q

Up front contracts(Don’t go past the foyer without agreement on the upfront contract!) statements and questions include

A
  • If we find we are a good resource for you, let’s continue the conversation and if not, we part ways as friends? Sound good?
  • Buyers are liars, sellers are worse, so that’s why I don’t immediately give out offers.
  • Even though I didn’t bring a contract, I want to see if we’re a good fit for each other.
  • I imagine you’re busy; I am too. If we were able to work out a good situation for you, what would be the next step? The reason is that we only buy # per week, and I have some other appointments. It’s really important that I spend my time with people ready to move forward. I’d rather revisit this later if this isn’t the right time. I can check back in 2-3 weeks.
  • Most investors are just going to just give a low offer, my team has up to 5 reasonable options for you. So, I want to present it to everyone, so we don’t have to repeat it. Is there anyone else that needs to be included before we start?
  • (If seller says they’re the only decision maker.) Thanks for telling me. A couple days ago, I spoke with another seller who said they were the only decision maker. Then she said the worst thing after an hour: let me go bring it to my husband. As long as that isn’t the situation here, I’m good to go.
  • (If seller says other decision makers aren’t available right now.) Oh, that’s perfect. I have another appointment that my team double-booked for me, so let me come back when (other decision maker) is back and we can all talk.
  • If I come to the house and we create a good situation for you, are you ready to move forward?
71
Q

Pain(Use in conjunction with the bonding & rapport section. “We’re extracting fuel/ammunition.”)

A
  • It doesn’t seem like you’re ready to sell.
  • What are you going to do/what happens if you don’t sell? What’s the next move?
  • You’re a glutton for punishment.
  • You don’t seem to have a motivation to sell this house whatsoever.
  • I don’t know if we can help you.
  • I don’t think you want to sell to me or anyone.
  • Sounds like you’ve got an emotional connection to this house.
  • It sounds like if you didn’t sell for another year, that wouldn’t be a good deal to you.
  • Looks like if you kept this house for another year, it wouldn’t be a big deal for you.
  • What is it costing you to stay in the property? (actual cost or opportunity cost of what they are not doing)
  • So you’re spending your hard-earned money to keep this property afloat? Wow…
  • If you could use that money to buy/pay for X, in order to do X (memories for kids, etc), isn’t that a better use for your money?
  • How will not making decision on this property cost or benefit you in 30 to 60 days?
  • Why would you even consider selling to an investor or anyone else?
  • What happens if you do (evict, re-lease, etc) with the tenants, and the property is torn up?
  • Since we can’t come to a solution before I leave, what are you going to do with this property?
72
Q

Fulfillment(Closing and coming up with the money.)

A

What if I told my partner that we need to come up to $$$$? Would that get you excited?

73
Q

Lease Option

A

give you the right but not obligation to buy the home when the lease expires.

74
Q

Lease Purchase

A

obligates each party to the typical terms of a residential purchase agreement upon the expiration of the specified lease term

75
Q

Ideal LP/O candidate

A

Someone who is aspiring to become a homeowner but isn’t quite ready financially.

76
Q

Home maintenance in LP/O

A

Depending on the contract the person renting may be responsible for maintaining the property and paying for repairs

77
Q

Does rent go towards the principal in a LP/O?

A

Yes, a portion of the rent being paid is applied to the principal

78
Q

How many benefits are there to seller financing

A

13

79
Q

What are the 13 benefits of seller financing?

A

Cash flow, Depreciation, Appreciation, Pay down, Tax write offs, Raise rents, Zero/Lower down payments, No credit requirements, No/Lower interest Loans, No W2/Job history, No income verification, No tax returns, Capital preservation

80
Q

3 things to do with the seller asks for too high of a downpayment

A

Negotiate better
Cash Out Refi
Morby Method

81
Q

What are the 4 main pillars of a real estate business

A

Acquisition
Disposition
Admin
Lead Generation

82
Q

In lead gen, the integrators role is to

A

Keep track of KPIs

83
Q

In lead gen, what questions should you be asking as an Integrator

A

Do we have money to spend?
Where is that money best spent to help us reach our business goals?
What are the lead sources/cost?

84
Q

Never argue downpayment

A

On the 1st conversation

85
Q

When comping properties you should stay within(years)

A

Same build generation

86
Q

Can you go under contract before probate?

A

Yes

87
Q

How many months in AZ can a lien be on a property without being renewed

A

6 months

Real Estate Investing (4 decks)

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