Creative Real Estate Financing Technique, Real Estate Options
Creative Real Estate Financing Technique, Real Estate Options
BREAK UP THE NOTE
Heres a financing technique that falls into the category of "Creative Real Estate"...
For our example we will use an apartment complex with a sale price of $5-million. Mr. Seller asks for 10% down and interest only payments for a specific number of years.
Mr. Buyer feels he can increase the cash flow from the building, but says that $500,000 (10%) down and a yearly interest payment of $450,000 would not be a profitable deal for him.
Mr. Buyer makes this full asking price counter offer: He will give Mr. Seller 20 separate notes for the 5-million with one note due each year, plus 10% interest.
5-million divided by 20 years would result in twenty $225,000, single payment notes. So....
The 1st note due at the end of the first year would be $225,000, plus $22,500 in interest.
That would be a substantial reduction in the payment compared to the previous interest payment of $450,000 per year.
The result is that Mr. Buyer now has a property where he can grow the positive cash flow with affordable financing.
If his made the financing assumable it will facilitate a easier sale in the future.
Mr. Seller has sold his property for full price and holds 20 notes for a nice yearly income. He can use those notes like currency to buy other real estate or personal property. Or he can sell a note to a broker now and again for extra income.
We have used a high priced property in this example, but the idea of giving a seller a series of notes instead of just one large note can be used in many situations... with a motivated seller.
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