Introduction

If you are a landlord that is currently content with remaining a landlord/tenant relationship KEEP THIS INFORMATION!

 

No one knows when or why they’ll decide to sell their property.

Being A Landlord Sucks!

Tenant Issues

  • Getting paid on time
  • Keeping the property in good condition
  • Receiving calls 24/7
  • Finding good tenants
  • Losing good tenants
  • Dealing with annoying tenants

Cash Flow Issues

  • Repairs
  • Late payments
  • Vacancy (termination of lease or skip out)
  • Evictions (attorney & court costs)
  • Increase property taxes (as rental classification)
  • Property management fees
  • Real Estate Commission fees

While these above issues are the most common, we all have heard the “war stories” people have told about Renters which are atrocious but real.

For many property owners over the past years “cash flow” has not been the paramount reason for renting their properties. Let’s face it, for those owners that bought during the so called “bad times” their properties values have increased so significantly, to date, that the problems created of being a landlord have been financially rewarding .

For some Owners renting their property has been their only credible solution because their property is “upside down” from buying at peak pricing times or over financing their property.

With appreciation leveled off or in some areas declining; the “cash flow and minimal appreciation” for many Owners renting their properties no longer overcomes the headaches of being a landlord.

For those of you that bought well; selling and cashing out typically creates two major issues to overcome.

The first of course is income tax. The net profit determined after the “base costs” will often take a considerable deduction from the “gain” and probably put your other incomes in a higher tax bracket.

The second concern is; where can you invest your “net proceeds and gains” for a return of any significance with metals, stocks, bonds, and other investment sources already overly priced?

When an Owner is willing to Carryback a loan for a Buyer that cannot get a loan from VA, FHA, or Conventional sources, the property typically is sold at a premium price above the comparable values; benefitting the Landlord and Owner that is “upside down”.

Please review the following pages of SAMPLES and learn how selling a property on a Carryback can benefit you financially and eliminate a lot of stress.

Agreement For Sale

An Agreement for Sale; also are known as a Purchase Installment Agreement, Land Contract, Contract for Sale, Contract for Deed, or a Carryback Loan. Under the terms of an Agreement for Sale it specifies all the terms whereby the Seller becomes the Lender for the Buyer (Purchaser/Borrower).
Other forms of Carrybacks are a Note and Deed of Trust and a Note and Deed of Trust. The Agreement for Sale however has several advantages over the Note and Deed of Trust:

  1. The Agreement for Sale is the only document that gets recorded at close of escrow. A deed is held with a serving company, until such time as the terms of the Agreement have been met.
  2. With the Agreement, only equitable title passes to the Buyer. Fee title remains in the Seller’s name.
  3. In the event of default a Seller may enforce forfeiture of a Purchaser’s interest by notice. Under ARS the reinstatement periods, for a Purchase Installment Agreement are much shorter (with 30% of less equity) than the Note and Deed of Trust.

Seller financing historically began a long time ago prior to “legal lenders”. While VA, FHA, and Conventional financing programs have created an enormously better financing means; they do not always meet the demands and needs for Buyers and Sellers. Creative Financing through Carrybacks are a paramount, “save the day” source of financing that have been used many times since the initiation of the “legal lenders”.

(The CFPB amended Regulation Z became effective January 20, 2014 establishing guidelines and exemptions for sellers (loan originators) wishing to carry back loans upon the sale of their properties.)

In brief:

An “Entity” may buy property and sell it to a Buyer with an Agreement for Sale enabling that Entity/Seller to sell without obtaining a”loan originator’s license”.

There are now restrictions on the number of properties an Entity can originate loans and other regulations we must follow.

Under The Home Ownership and Equity Protection Act, January 2014, a Seller must verify a Borrower’s ability to repay the loan to determine if a transaction is a high-cost mortgage. This verification process is beneficial for the Buyer(s) and Seller(s); but isn’t rigid as normal lenders qualification standards.

Experienced Realtor, Title Company, and Servicing Agency must be thoroughly knowledgeable with these procedures whereby they can all work together in compliance’s with these Acts and others safeguarding the interests for all parties concerned.

Renting vs Selling

Purchase Installment Agreement

Renting

Tenant (Don & Debbie Deadbeat)

Monthly Rent $1,200
 —
 —
 —
 —
 —
Gross Income $1,200

Landlord (Sammy & Susie Seller)

1st Mtg. ($125,000 @4%) $596.77
 2nd Mtg.  $
 Taxes  $131.42
 Insurance  $60
 HOA  $40
 Sub Total  $828.19
 Monthly Net Income  $371.88
Annual Net Income $4,461.72

Selling

Comp Value $200,000
Sales Price $220,000
Down Payment $<22,000>
Loan Amount $198,000

BUYER

P & I @ 6% $1,187.11
Taxes $131.42
Insurance $60
HOA $40
Servicing $20
Total Payment $1,420.53

Commission 6% $13,200
Fees (appox 1.3%)  $2,860
Total Costs  $16,060
Net Proceeds From Sales  $5,940

SELLER

1rst $596.77
2nd $
Total Costs $596.77
Monthly Net Proceeds $590.34
Annual Net Proceeds $7,084.08

Buy & Sell Real Estate

"With A Carryback"

Bob & Betty Buyer

Acquisition

Purchase Price $200,000
Down Payment <$40,000>
Mortgage Amount $160,000

Monthly P & I @4.5% $810.70
Taxes $103.25
Insurance $60
HOA $40
Total Payment $1073.95

Down Payment $40,000
Closing Costs $3,000
Gross Investment $43,000
Net Down $ Received <$8,300>
Total Cash Investment $34,700

P & I Received $1,187.11
P & I Payable/td> $810.70
Monthly Cashflow $376.41
Annual Cashflow $4,516.92

______13 % ROI Annually 34,700 ) 4,516.92

Selling

Selling Price +10% $220,000
Down Payment (10%) <$22,000>
Mortgage Amount $198,000

Monthly P & I @6% $1187.11
Taxes $103.25
Insurance $60
HOA $40
Servicing $20
Total Payment $1,410.36

Down Payment $22,000
Commission <$11,000>
Closing Costs <$2,700>
Net Down $ Received $8,300

Wrapping A Mortgage

A Wrap is used is a financing method used to facilitate Buyers purchase property and Sellers sell their property by maintaining the existing mortgage(s).

For Buyers; the Wrap is used when they can’t qualify for a mortgage through VA, FHA, or Conventional financing underwriting criteria. In recent times this is often the result of a Trustee Sale or Short Sale. Other common reasons are recent bankruptcies, new employment, self employment, etc. When purchasing with a Wrap; a Buyer still needs to show their ability to make payments; but not with the same constraints the mortgage companies have to utilize.

The Wrap advantages, for a qualifying buyer, is the financial equity appreciation through principal payments or inflation, income tax write off on property taxes and interest, pride of ownership, not having to relocate sooner than desired because Landlord wants/needs to sell their rental property, living with needed repairs that the landlord can’t or won’t fix, etc.

For Sellers; “Being a Landlord Sucks” a Wrap minimizes and eliminates most of the problems they continually experience with deadbeat tenants and repairs.  The Wrap allows the Landlord to be a Lender.  The Lender/Owner now has a Buyer that has more skin in the game with a substantial down payment.  By originating Seller financing, a consistent assured respectful Return on Investment (ROI) is realized compared to other speculative investment opportunities that are often overpriced.  For the Landlord that has experienced an appreciation profit on their property; a sale that would cash them out would result in a sizeable income tax.  Profits on the Wrap are spread out through the terms of the Agreement without significantly elevating them up to a potential higher tax bracket. (See “IRS form 6252” Sample)

Recent underwriting guidelines changes has resulted in many properties that Lenders now can’t lend on;  along with neighboring “distressed” sales many Owners are now “upside down”.  This in turn has forced many property Owners to become and remain Landlords, whether they wanted to be or not.  The Wrapped property doesn’t have to meet the difficult underwriting guidelines or appraisals criteria that legal lenders require making their property now “marketable” with a higher monthly income. (See “Renting Verses Selling on Purchase Installment Agreement”)

For Investors seeking a reasonable ROI, the Wrap can provide that when they buy property and then sell it becoming the Lender. (See “Buy & Sell Real Estate With a Carryback”)

There are 2 kinds of Wraps

  1. Regular Wrap is used when the Buyer’s down payment isn’t enough to “cash out” the Seller’s equity.  With this Wrap the Buyer would be paying the Seller’s mortgage(s) and the Seller any difference in equity per the Agreement.
  2. Exact Wrap is where the Buyer’s down payment is enough to “cash out” the Seller’s equity and makes payments on the balance of the Seller’s mortgage(s).

On both of these Wraps, the Seller’s name remains on the existing loan(s) and remains responsible, with the Buyer and Seller acknowledgement. Insurance policies need amending also.

Wraps can only be used for VA and Conventional loans only.  FHA loans start with the numbers 023- and cannot be wrapped.

(See “Wrapping a Mortgage” Sample)

 

WRAP PROCEDURES

    1. Greg Leach Real Estate & Investments: Executes a Purchase Agreement, Seller Financing Addendum and other pertinent Addendums for Buyer(s) and Seller(s), delivers them to title, orders various inspections, and other services similar to a traditional transaction. (See “Purchase Agreement” and “Seller Financing Addendum” Samples)
    2. Title Company: Opens escrow with Buyer’s earnest money, Purchase Agreement, Seller Financing Addendum, and other applicable Addendums, obtains Preliminary Title Report, prepares Agreement for Sale, Closing Statement, and records the Agreement along with requirements found in most traditional transactions
    3. Loan Servicing: After closing, Buyer makes Wrap payment to Servicing; Servicing then pays monthly payments to Mortgage Company, HOA, insurance company, Seller, and any others per the Purchase Installment Agreement. Servicing holds pre signed deed to be recorded and given to Buyer once the Agreement has been fulfilled.

Summary

This website information hopefully has given you a better understanding of how you can financially and mentally benefit by utilizing a Purchase Installment Agreement or Wrap when initially purchasing in real estate or converting your rental property into a sale by becoming a lender instead of a landlord.

The samples shown are based on realistic yet very conservative examples on how rental property or newly acquired property in Arizona can be profitably sold using seller financing methods.

The samples shown covers only one concept on how seller financing can be used.  Every Wrap needs to be custom tailored to meet the specific needs/wants that are mutually beneficial for the Seller(s) and Buyer(s) for a long term transaction.  Pricing, down payments, terms, interest rates, and other conditions are all separate but negotiable ingredients.

HOMEOWERS:

For all questions regarding my services and how The Agreement for Sale can help your individual situation, please complete the Contact Greg form.

REALTORS:

In order to effectively execute a Purchase Installment Agreement together for a Buyer(s) and Seller(s); we will originate and process all necessary documents, select title and loan servicing companies and represent both Buyer(s) and Seller(s).  A Referral Fee Agreement form is available on this website.  Please consult with your Broker prior to referring a client to enter into a Purchase Installment Agreement.

Please Upload Here

Please click the download link on the left to get started. After you have had a chance to go through the agreement, please fill in your information, sign, date and send back to me using the form below. Thank You!

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About Greg

Greg was first licensed as a Real Estate Agent in August 1963 in Michigan. Shortly thereafter he became a Real Estate Broker, Mortgage Broker, and General Contractor owning his own companies.

His in-depth experiences along with others during the 1960 to early 1970 era inspired him to write his book “The Birth and Death of a Builder” which is available through Amazon and Kindle.

Greg moved to Arizona in 1976 where he sold new homes for several large building companies before securing his Arizona Real Estate Broker and B-2 General Contractor’s Licenses creating his own companies again.

During the collapse of the Real Estate market he brokered many REO single family properties for several lenders while establishing strong broker/investor relationships.

Over the last decade his clients have primarily been investors
that have enjoyed significant appreciation on their properties.

Several of his investor/landlord clients now are tired of being landlords and want/need other investment strategies.

It is their current wants/needs that rekindled his knowledge and experience
utilizing the Purchase Installment Agreement as a means to achieve new investment strategies more effectively for investors.

This website outlines the various advantages of selling property on a Purchase Installment Agreement verses renting by showing sample documents.

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