Part 2 of a basic introduction to the note business, and how owner financing gives birth to it.
Over here the buyer says in this scenario the buyer says look either to the seller i want your property i’ve saved up $10,000 i really will you offer terms will you provide the financing will you carry paper for me what’s paper this note the notes are actually written on a piece of paper right you sign it just notarize whatever will you carry for me either i don’t
Want to go to the bank and get along or i can’t you know my credit score is not good i had a bankruptcy at a foreclosure or whatever i can’t get along right now but i have enough money to to buy this house so the seller says yes i will so the seller actually steps over here and okay they become the bank okay this is kind of weird but the seller said when they offered
Seller financing they become the bank on property they already own do they actually go over then get a loan from the bank and give it to the buyer since the buyer can’t get their own no that’s not what happens the seller becomes the bank anymore if this is seller bank okay the seller becomes the bank on their own property and so the buyer says okay i’m gonna give you
My down payment my down payment of $10,000 and i’m hoping that you seller bank are going to lend me your equity you have $100,000 of equity in your property i gave you $10,000 in the turn in a down payment now you have i really owe you $90,000 more but will you lend me your equity over time and the seller so okay i’ll do that so the seller who’s acting as the bank
On their own property gives the buyer loans them their equity the bank over here is loans actual money or i don’t know little bits and bytes an electronic data right that’s okay what is but they lend money over here the seller the seller this is the same person right seller your owner of the property seller as the bank the seller loans equity how are we gonna treat
This so now what do we do how do they loan equity and what are we okay well let’s do the numbers $90,000 of equity and the seller says look i’ll carry this for you at 6% interest i’ll carry for 30 years i’ll give you a 360 months to pay this back to me and that will be a monthly payment of five hundred and thirty nine dollars and sixty cents same right in exchange
For that does this does the does the seller just oh hey no biggie i trust you to pay me no they what are they gonna want if i do this for you if i lend you my equity and what i want is the same as what the bank wanted i want i note and what does the note say the note says i the buyer promise to pay you the seller five hundred and thirty nine dollars and sixty cents
For the next three hundred and sixty months but if i don’t you can take my property okay and you can foreclose on me just like the banquet so here we have seller lens equity bank lends money note is exactly the same this is an institutional note this is institutional paper this is a private loan private terms this is private paper okay but they’re exactly the same
In so many regards and so that’s how it works then everybody’s happy and the seller gets on this side they get they get their $10,000 down payment and then they get a ninety thousand dollar note which is their five thirty nine sixty a month and probably they’re pretty happy to be making six percent if their only other option was to take the ninety thousand dollars
And stick it in a one-percent cd at the bank so here is the seller being able to sell the property at a price that they want and they think is fair and they’re making six percent of them on their money and it’s secured by a property that they know right this is the security for the note the collateral and and they’re happy with that and a lot of people are saying
I can’t make six percent i don’t trust the stock market i don’t i don’t trust wall street i don’t trust the government anything i just want my money secured by by real things i can touch and smell and go and walk on things that i know and trust and so that’s why the seller could be very very happy obviously the buyers happy he got he didn’t even have to deal with
A bank to get into this property so here we have that’s what owner financing seller financing is we can also see that’s how we get a note business now this bank is holding this note over here in the to tional side of things and over here the seller is holding a note a private note on the private side of things okay so that’s enough for right now we’ll take it up a little bit later
Transcribed from video
Basic Intro to Owner Financing and Notes (pt 2) By Dawn Rickabaugh
