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Originally Posted by roadtoharvard
I'm not questioning the process but there seems to be quite a few assumptions in there. It's great that the risk is spread amongst investors and if in fact the returns are as good as you claim they are than it may viable possibility for investment. You are still nonetheless subject to the risk that is inherent to Real Estate. Do said opportunities actually exist? If so why are they at such a discount? If such a discount exists than why aren't other investors taking the opportunity? If they are selling at such a discount how much investment is needed to bring them to projected value? Are you sure the appropriate buyer can be found at the projected value? Some have characterized the current real estate market as "soft". Who will deal with contractors? Is the proportion of investment returned equal amongst partners or is it split according to work done? Are you prepared for the squabbles that may occur if said event takes place? What happens if contractors are unreliable? Is there sufficient funds to cover extra carrying costs as well as renovations? Who will pursue contractors in case of fraud? Are those legal costs shared?
Some questions to ponder about the club itself: What are the administrative fees of running the REIC and do you factor in dues with your ROI? What happens if a partner wants their money? It there a cash pool for the withdrawal of said funds? What happens if a partner dies? Do you take out insurance policies on one another to buy his proportion of the investment from the inheritors? What if said partner dies without a will and his family squabbles over the remains? Do you have the right to sell his portion of the investment without his inheritors consent? Do you have sufficient resources to house the property while this is being resolved? How is liability spread amongst members in case of litigation? Is there a partnership agreement in this transaction and if so does it cover those risks in it's tenants?
I'm not trying to discourage this type of investment but I just want to point out there there are risks involved that many do not think about.
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I've heard of them and I've done minor research... but this is questions that only the clubs could answer... I haven't dived much into this honestly so yeah. Either way, I can try and do some on Googling and find some of these clubs if there is any club websites. I can't guarantee but I'll see what I can dig up.
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Originally Posted by roadtoharvard
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Great site but here is an objection to one of his comments.
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But what if you own your house free and clear? That is, what if you've already paid off your 15- or 30-year mortgage so you didn't have to worry about coughing up a lot of money to pay off the loan all at once? Then in that case, you don't get your $150k all at once -- you have to accept the small payments that trickle in month after month from the buyer.
Why on earth would you do this? Well, probably, you wouldn't, unless you're really desperate to sell for some reason, or you don't understand what a rotten deal it is for you, or you're unusually generous.
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They could seller finance and then call ME up (the cash flow consultant.) From there, I can connect with them investors to sell their note for a large lump sum. It may be purchased for a discount but atleast they'd know there is a way out. The best part, they don't have to sell the entire note, they can sell part of it as well.
Also, its a great way for passive income... since they are selling the home... the new homeowner (the payor) assumes property taxes, on top of that if anything is broken by the new homeowners, they have to pay to fix it. So its still a good idea to seller finance. This being because: 1, it gives you passive income... 2, you can sell the entire or part of the note if you want out... 3, you don't pay any property taxes or repair fees... 4, you own the home (I forget, the title of the property I believe stays in YOUR name until the seller-financed note is paid off.) That allows for the seller to repossess the home and sell it again if the payments stop coming in.
I also agree with Michael's statement on stocks and seller financing as an investment. Seller financing is a very good way to be quite honest with you to get a return. But no matter what, don't make the interest rate too high or you'll be violating usury laws (higher then average interest rate.) That could penalize you in the end.
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Originally Posted by roadtoharvard
Yes that's quite a nice spread. It doesn't make much sense to me however. Why doesn't the original owner rent out the home for $1,200 a month? It's a better ROI for him and as you said he is an investor since he is financing the house. Shouldn't he know that he can achieve a better ROI at current rent rates? If the person Austin rents to for $1200 a month is paying so much when $800 amortizing notes are achievable in the market wouldn't the next logical conclusion be why wouldn't the renter just get a mortgage? The answer is that he would probably do just that unless he is of poor credit? What does a poor credit tenant mean? Problems.
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Why doesn't the original owner rent out the home for $1,200 a month?
In my opinion, they may not either want the hassle of handling the property (in reference to repairs) or want to have to pay property taxes on it. In short terms, they may not want the burden of having to MANAGE the property.
It's a better ROI for him and as you said he is an investor since he is financing the house.
Hmmmm, better R.O.I. for renting out --- sort of. Let's say Austin owns the property and instead of seller financing, he rents it out. You have to figure, by the time Austin deducts money for the property taxes, any repairs needed, any insurance on the home, etc. its not really a good R.O.I. Remember... he is renting the home out so its still his property (which means Austin would be responsible for the property taxes, maintaining the property is in good condition *no busted walls, broken items, etc.* as well as paying for homeowners insurance.)
If the person Austin rents to for $1200 a month is paying so much when $800 amortizing notes are achievable in the market wouldn't the next logical conclusion be why wouldn't the renter just get a mortgage?
Not understanding this but here is my response for what I do get. Austin could owner finance the property himself to someone else. That means that he'd have to pay me whatever was left on my note for him to achieve "First Position" lien.
Simply, as Michael described on his site, when you sell your home, you must pay off the mortgage company first for whatever they are owed. For instance. let's say Austin purchases the home from me and I own the home free and clear. I also owner-finance the home for him so let's say he is to pay $175,000 on the note. After a few years, he has $150,000 left... but Austin decides to sell the home to another couple for $200k... the "other couple" gets a mortgage from the bank for $200k. In this position, I am the mortgage company so Austin has to pay me my $150k and he keeps the other $50k while the bank become the "First Position" lienholder since mine has been released.
Its quite a complicated subject to explain in words to be honest so before I confuse the hell out of myself, I'm going to call it quits here.
Here is what I'd recommend: If you a sure way guarantee to get a solid investment... invest in tax liens. This is a win-win situation, no matter what one says. You either have 2 things... either get the property you paid the tax lien for or your money back plus interest. This is the sure way as many would say to getting a good investment.
