Selling Expensive Homes

Selling Expensive homes

Question today from a student: Expensive Homes
Would your program work in areas where the homes are more expensive than those described on your model — even in the “half-price areas”, where the rents are below the 10% rule of thumb?

Homes for $495,000 do not command rentals exceeding $3,000 per month and homes for $200,000 cannot get rents over $1200 per month.

Here are my thoughts:

There are arguments it might work. If you can get very large down payments (40% – 50% – 60% and up) I think it could work. Especially if YOU could secure favorable mortgage terms from a more institutional lender; like smaller banks that would let you “Wrap” their primary underlying note with your Buyer’s secondary note.

I just re-financed $1,050, 000 of private money, acquisition debt, where I owed 8% to 10% interest only payments.

A small, local bank agreed to loan me the $1,050, 000 against my $1,800, 000+ of a OWNER FINANCE NOTE BALANCES. The appraised values of the properties was $2,000,000

Bank Terms:
15 yr Amortization
10 yr balloon
5 yr rate adjustment (prime + 1)
9% interest rate cap

PARTIAL COLLATERAL RELEASE PLAN so when properties pay off
I can take the house out of the pool, pay that properties portion of the debt, keep my equity profit.

So what if you bought a $400k property for for $250K?

What if you owner financed it for $440k (10% over market)

What if you took $200k Down?
What if you carried the $240K balance @ 8% for 30 yrs?
P&I Payment = $1,761

What if you kept $160k for yourself, and paid down your debt to $200k

What if you financed or refinanced your $200k remaining debt @4.5% interest 15 yr amortization.
P&I Payment = $1,530

You’d get paid $160,000
You’d owe $1,530 for 15 yrs
You’d collect $1,761 for 30 yrs
You’d have a positive cash flow of $231/mo….
You’d have gotten paid $160K to create a $231/mo Cash flow

There are so many variables on this plan it’s not even funny…but you get my drift.

…You could have used $140K of the $200K down payment and paid down your $240K debt to $100,000 and only kept $60,000 for yourself upfront and created a cash flow of $690

Do you think the bank would have loaned you $100K
at 4.5% interest against a home that easily appraises for at least $400K????

So I think you could make money on expensive houses. It all depends on the size of the down payment.

I say that places like Los Angeles and areas of Florida, New York, Las Vegas etc, etc, just might have the type of population ready and willing to pay large down payments in the name of speed and closure to certain problems.

It will definitely help if you can take advantage of the current interest rates available to those with good credit.


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