A higher interest rate rather than the current mortgage interest rate may encourage the seller to accept terms that would otherwise be unacceptable.
This creative real estate financing technique #2 could allow a seller to postpone a portion of capital gain that might otherwise have to be reported in an installment sale under the new tax law.
For example, a seller has a property for sale at an asking price of $100,000. The property has an existing, assumable mortgage of $50,000 payable at the rate of $450 per month. The seller wants $10,000 cash at close and will extend you a loan of $40,000 in the form of a mortgage at 10% interest.
Offer the seller $95,000 with no money down. Agree to take over the loan of $50,000 and pay 15% interest on the remaining $45,000 for a period of five years. The result is a monthly interest payment of $563 ($45,000 x 15% divided by 12 months) to the seller. You initially pay only the interest with $45,000 due in five years.
If the total monthly payments for the first and second mortgage of $1,013 per month ($450 + $563) result in a negative cash flow, restructure the second mortgage so that only a portion of the 15% interest is paid monthly. The balance would be accumulated but not compounded and would be due along with the $45,000 at the end of five years.
|Example Summary Technique #2|
|Lower The Price / Raise The Interest Rate|
|What You Need To Begin:|
|A seller who does not have to receive cash at closing and is interested in monthly income.|
|Summary Of Terms:|
|Monthly Payment||$ 450|
|Required down payment||$ 10,000|
|Mortgage by seller @ 10%||$ 40,000|
|Take over loan||$ 50,000|
|Accept mortgage by seller at higher rate of interest.||$ 45,000|
|If cash flow is negative, restructure the interest payments.|
|The buyer has a property for no money down. The monthly payments may be high, but restructuring the interest can help alleviate some of the burden.|
|The seller has received a good price and high monthly income.|
|Specific Situations to Apply Technique #2|
|Property Offered Below Market|
|No Cash at All|
|Must Sell Immediately|
|Will Finance: Wants High Interest|
Interest Rate To Wrap Around Mortgage