The Language of Real Estate You Should Learn (9)
We have flipped many properties to other investors who wanted rental units. They did not want to have to qualify for a loan from a traditional lender. Once we had negotiated a contract where the seller agreed to act as the lender for the transaction, there was a simple matter of finding an investor who wanted to take advantage of a typically lower interest rate than was available from a bank.
With a lower interest rate, the investor had a lower mortgage payment. With a lower mortgage payment, the investor was more likely to be able to have the rent create a positive cash flow. The difference on a $200,000 loan amortized for 30 years at 8 percent from a bank and a $200,000 loan amortized for 30 years at 6 percent that the seller would carry back is almost $270 a month.
This property was a duplex rented for $800 a month per unit for a total monthly rent of $1,600. Although the monthly rent would cover both the bank loan at 8 percent and the seller carry-back loan at 6 percent, after operating expenses there was no positive cash flow with the bank loan, but there was a positive cash flow with the seller carry back loan.
10. Nothing Down No down payment. Zero. Nada. Nothing down means a seller wants the property to be the most competitive one on the market. If you are a buyer, which property would you prefer?