Selling Your Home
When you are selling your home, buyers look at your property in two ways. The first way is emotionally. Does your home and property appeal to the potential buyers’ wants and needs? They try to picture themselves as owners of your property.The second way buyers look at your home is economically. Can they afford the price that you have set for the property? In many cases the answer is yes, if YOU cooperate.
Therefore, what limits the possibility of the sale taking place is the buyers’ ability to satisfy your economic needs. This is where the Hidden Bank can help you, because you own that bank. That bank is the market value of your home. With your bank you can get all the potential value out of youe home sale. You can develop an income stream; that income stream can help you buy another home, downsize or just make extra income. If these options interest you, read on!
What is Private Financing?
Private Financing uses Promissory Notes instead of accepting cash to sell anything of value. For years, people have used these promissory notes for selling Real Property: Houses, Lots, Multi-family Residences, Commercial Buildings, etc. Single family residences are prime targets for selling or buying property. Bankers invest in home buyers, so can you.
My parents bought their first home in 1953, using a ‘private mortgage’, financed by our neighbors. My Dad had a union job and Mom stayed at home with three boys. They weren’t wealthy, but they paid their bills. Private financing was more common then and our neighbors considered my parents good risks and they financed our home with a Private Note and Mortgage
It Worked in 1953; It Still Does in 2013
My parents paid the loan off, over time, with interest paid to our neighbors. And, the formula worked for us when we sold our vacation home in 1994. Our profit was over $13000 over three years not counting the rental income before we sold to our tenants. Banks were paying 5% interest on savings at the time. (Treasuries 3.25%, CD’s 5.5%) We charged 7%.
If you “privately finance” your house sale, does this mean that you have to put up cash to close the deal? No! You already own the value of the property described in your deed. You can become the “bank” by using the intrinsic market value of the property; this is the “cash”. It’s called equity and you are selling your equity interest in the property to your buyers. You are turning your house into an investment vehicle.
Sounds freaky, right? You may be living in a house worth $thousands in investment income.
Investment Income / The Market Value
An example: A buyer wants to buy your home in the traditional manner. He officially offers you, in writing, the price he is willing to pay you for your property: $100,000. You accept, in writing, and then the attorneys hammer out the agreement and the buyer goes to a bank and borrows $100,000 which you get in return for your deed to the property.
You take that money and invest it in a savings account at less than 1% per year or in a CD @ 1.75%. With the CD, you would have $109,062 after five years, a gain of $9,062**. However, if you become the bank in this transaction, at a conservative 5% interest per year (30 year note), that same $100,000 would have earned you: $24,038** in interest income in the same five years. What’s more, after five years, the buyer would still owe you $91,829 plus interest @ 7%. That’s $24,038** versus $9,062 in five years; it’s your call.
And your investment is just as secure with the FDIC; State Laws protect your investment.
** Amount shown before income taxes
What If They Don’t Pay?
I know what you’re asking yourself: What if the buyers don’t pay? To that, I answer; what if he does? There’s a 90% plus certainty that buyers will pay their mortgage based upon current mortgage payment reports. You will make $14,976 more in investment income in just the first five years, which is yours to spend anyway you want. There are twenty five years of income left.
The bank makes over double what they are paying you, on your CD. You can make almost three times what you can make on their CD. Why not be the bank?
An Actual Deal We Struck
We rented my eighty year old mother’s property with an option to buy. These renters were interested in buying but did not have the down payment. We interviewed them in person to see if we felt comfortable with them. It is important that you, the Seller, meet personally with potential buyers. This is one of the drawbacks with using Realtors; Sellers and Buyers are kept at arm’s length. Most purchases and sales are done this way. We can show you another way.
My brothers and I checked their work history and spoke with their employers. The tenant/ buyers agreed to make repairs and renovations; we credited these against the purchase price. The contract incorporated two interdependent agreements: a Lease Agreement and an Option to Purchase the Property. The Lease Agreement was 24 months @ $1,500 per month.
Two Years Later, Tenants Exercised Their Option
After two years, the tenants opted to purchase the property by including their option payment, renovation costs and rental credit against the purchase price. Instead of going to a bank, we offered a Private Mortgage for the remainder of the purchase price which would generate interest and principal payments based on a 30 year payout @ 7% with a two year balloon* payment.
* Balloon payment simply meant that, in two years, they had to go to the bank and refinance Mom out of the deal.
The Result of Mom’s Investment In Debt
The terms of the private loan generated monthly cash income at an interest rate of 7%. This became the funding basis for our mother’s assisted living and medical costs. After two more years, the young couple approached the bank and refinanced Mom out of the private mortgage.
Counting rental income and the balance paid by the refinancing of the property, my mother, not a bank, netted over $372,000 on a house priced by a realtor at $262,000. This was quite a difference (+ $110,000) in cash flow. That investment vehicle generated 42% return over a four year period. This cash supported her for the rest of her life.
The Correct Side of Debt – Investing in Debt
“Financial Guru’s” know what is meant by these terms, but most of us haven’t had their education. And, sadly, our primary and secondary education and our universities spend little time preparing students for the world of credit and debt. Most young people don’t learn about credit until they graduate high school and get into college. Banks and credit card companies meet freshmen during college orientation and pass out their credit cards.
The first time our children swipe those miraculous pieces of plastic and buy whatever they want, their feeling of financial power is awesome. After all, it will be 30 days before they’ll see the billing and interest due for their purchases.Then, there’s the student loan debt after graduation.
This is the wrong side of the ‘debt equation’ as we see it. One should want to be on the side of the banker and not be the debtor. All home owners are in a position to be a Private Bank; they just have to be educated. Financial “Guru’s” defer to the banks, the bond markets and the stock markets as recommended investment strategies. Private Mortgages are better instruments and more secure.
Sound interesting? Let us educate you. It may get you on the correct side of debt or not!
It’s your choice.