Welcome to Real Deals! It’s always easier to learn from real life so here we share information from actual owner financed transactions.
Think it’s hard to get a home loan? Imagine the challenges that come with financing a church! Here’s how seller financing offered a creative solution to provide meeting space for a New York congregation.
A local religious organization was looking for meeting space in upstate New York. They found a 14,000 +/- square foot commercial building offered for sale by an owner that had outgrown the space.
The church had been incorporated and desired to purchase property as a corporate entity. Without a personal guarantor, it would be difficult to obtain bank financing. They offered to purchase the property if the seller would accept payments.
The seller agreed to owner financing and the property sold for $95,000 with a $20,000 cash down payment at closing. The remaining balance of $75,000 was carried back in the form of a Note and Mortgage at 8.5 percent interest. The church made monthly payments of $576.69 per month to the seller with a balloon payment all due and payable in five years.
The seller received five years of payments and the remaining principal balance paid down to $71,617.34. With refinancing still difficult to obtain, the seller agreed to extend the note payments for another 5 years to meet the needs of the buyer.
After receiving 67 monthly payments, the seller desired a lump sum of cash rather than small monthly payments. The seller sought the assistance of a note broker to help locate a potential a note buyer.
This type of note would take a specialized investor. Since the note was not personally guaranteed, the primary recourse for any default would be the property itself. However this was offset by several positive factors. The payer had a solid payment history with equity and the property had alternative use as an office space.
An investor was willing to purchase the note, provided the exposure or investment to value was kept below 60% of the property value. The note and mortgage were assigned to the investor with the seller receiving $54,063.24 for the purchase of the remaining note payments.
Real deals are based on actual transactions completed within the past ten years. Market conditions change frequently resulting in pricing and underwriting changes by note investors. Work with qualified professionals when creating new notes to obtain accurate and up-to-date pricing and investment parameters.