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Risky RE Growth Opportunity

TurtleSprint

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Looking for some advising here and need your thoughts...

I've got some good equity built into one of my properties that would sell for enough to put a down payment for a larger complex. Considering it but am hesitant because it's my most "hands-off" property and brings in good revenue with long term tenants. There's no specific target property in mind currently but I've passed up even looking at a few because their numbers didn't appeal.

Just looking ahead if one comes up. Would it be worth taking on potentially more headache to leave this gem behind? Part of me says go for it and the other part says hold the reliable duplex for a while.

Any advice appreciated!
 
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EvanOkanagan

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Looking for some advising here and need your thoughts...

I've got some good equity built into one of my properties that would sell for enough to put a down payment for a larger complex. Considering it but am hesitant because it's my most "hands-off" property and brings in good revenue with long term tenants. There's no specific target property in mind currently but I've passed up even looking at a few because their numbers didn't appeal.

Just looking ahead if one comes up. Would it be worth taking on potentially more headache to leave this gem behind? Part of me says go for it and the other part says hold the reliable duplex for a while.

Any advice appreciated!

Instead of either/or, why not do both?

Depending on your financial situation, there might be an opportunity to get a Home Equity Line of Credit made available tapping into the equity of your Duplex. If you were to do this, the funds would be available but accruing no interest. Some banks will even lend up to 80% of the value of your property in the form of a HELOC.

For example:
- Property is appraised by the bank at $500,000
- The bank will lend up to 80% (in this case $400,000)
- If you only have $300,000 owed on the mortgage, you could get a HELOC for $100,000. It would be a Line of Credit at (likely) quite a low interest rate and you would only start paying interest from the moment you utilize it.

This way, you don’t miss out on opportunity if something comes up and you can hold onto the well performing Duplex.
 

TurtleSprint

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Instead of either/or, why not do both?

Depending on your financial situation, there might be an opportunity to get a Home Equity Line of Credit made available tapping into the equity of your Duplex. If you were to do this, the funds would be available but accruing no interest. Some banks will even lend up to 80% of the value of your property in the form of a HELOC.

For example:
- Property is appraised by the bank at $500,000
- The bank will lend up to 80% (in this case $400,000)
- If you only have $300,000 owed on the mortgage, you could get a HELOC for $100,000. It would be a Line of Credit at (likely) quite a low interest rate and you would only start paying interest from the moment you utilize it.

This way, you don’t miss out on opportunity if something comes up and you can hold onto the well performing Duplex.
Good point. I'll get with my bank and see what my options are. Might be time to shop around too and see if another bank wants to play ball.

Thanks for the feedback. I'm chomping at the bit to make another move.
 

WJK

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Looking for some advising here and need your thoughts...

I've got some good equity built into one of my properties that would sell for enough to put a down payment for a larger complex. Considering it but am hesitant because it's my most "hands-off" property and brings in good revenue with long term tenants. There's no specific target property in mind currently but I've passed up even looking at a few because their numbers didn't appeal.

Just looking ahead if one comes up. Would it be worth taking on potentially more headache to leave this gem behind? Part of me says go for it and the other part says hold the reliable duplex for a while.

Any advice appreciated!
Personally, I like the comfort zone and high equities... but, I gave up risky moves a long time ago. Growing older makes me a lot more conservative.

But, on the other hand, you're talking about a duplex. Why don't you buy another small residential rental property (2 to 4 units) and move into it? You could buy it with very little down since it would owner-occupied financing. Then after a couple of years, rent it and move on and do it again. It depends on your stage in life.
 
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TurtleSprint

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Personally, I like the comfort zone and high equities... but, I gave up risky moves a long time ago. Growing older makes me a lot more conservative.

But, on the other hand, you're talking about a duplex. Why don't you buy another small residential rental property (2 to 4 units) and move into it? You could buy it with very little down since it would owner-occupied financing. Then after a couple of years, rent it and move on and do it again. It depends on your stage in life.
Funny you mention it, I actually do live in one of my rentals. I've never paid a single month of mortgage which has been amazing! Going to try and stretch it out as long as possible. I'm not opposed to another duplex or similar. Just looking to upgrade to higher dollar investments. The goal is to move to managing them full time eventually.
 

TurtleSprint

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Hey all! Time for updates and some advising needed...

Recently put down an offer on a nice side by side duplex that seemed like a no-brainer. The seller is older and looking to cash in after holding for 50 years. Strangely enough, I was told the price was dropping 10k before we even stepped inside. The numbers made sense and the offer was accepted below the discounted price even! Lots of room for added value and good cash flow in the mean time.

Since then I've been presented with another package deal for two more duplexes. However some of my funds are obviously tied up with the above. These are already completely renovated and definitely turn-key opportunities. I'd have to get creative with financing but my main concern is that there's not a lot of potential to ADD VALUE. Rents will cash flow but I hesitate because they're less of a deal and more of a safe, cash flowing grab. I'm leaning hard towards passing on these if that isn't becoming clear. Thoughts? Would you go with the additional monthly income? Or wait for another opportunity with monthly income but room for renovations?

Cheers!
 

WJK

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Hey all! Time for updates and some advising needed...

Recently put down an offer on a nice side by side duplex that seemed like a no-brainer. The seller is older and looking to cash in after holding for 50 years. Strangely enough, I was told the price was dropping 10k before we even stepped inside. The numbers made sense and the offer was accepted below the discounted price even! Lots of room for added value and good cash flow in the mean time.

Since then I've been presented with another package deal for two more duplexes. However some of my funds are obviously tied up with the above. These are already completely renovated and definitely turn-key opportunities. I'd have to get creative with financing but my main concern is that there's not a lot of potential to ADD VALUE. Rents will cash flow but I hesitate because they're less of a deal and more of a safe, cash flowing grab. I'm leaning hard towards passing on these if that isn't becoming clear. Thoughts? Would you go with the additional monthly income? Or wait for another opportunity with monthly income but room for renovations?

Cheers!
You are already in a good deal. Stick with that one. The world is stuffed with more deals. A greedy heart makes for bad decisions and a sloppy execution of those decisions -- which can cause your whole life to fall apart. As you go along, you will find yourself saying NO several times before you say YES. The key to being successful is to know when to say YES.
 
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TurtleSprint

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You are already in a good deal. Stick with that one. The world is stuffed with more deals. A greedy heart makes for bad decisions and a sloppy execution of those decisions -- which can cause your whole life to fall apart. As you go along, you will find yourself saying NO several times before you say YES. The key to being successful is to know when to say YES.
Well said. Like I mentioned I plan to pass but figured I'd see what some other views were out there. Thanks!
 

TurtleSprint

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It's been a busy month! In the midst of closing on the side-by-side I've hit a few road bumps that have made it all the more enjoyable.

Event #1: The sewage drain at another duplex started backing up on the tenants so I was advised by my preferred (no longer) plumbing company to have it "jetted" out to clear what's called a belly in the line. Long story short, it turns out the damage was more than a belly but rather collapsing orangeburg pipe... for those that aren't familiar, not good at all. So basically I shelled out a ton of money to expedite the pipe collapse. Ended up having to have the front yard dug up to replace everything and the bills rolled in.

27598 27599

Learning & Outcome: If your city offers insurance for the drain, GET IT. This was my only property that I didn't have covered and thus will take a large L and pay every cent out of pocket. However, I now have very happy long term tenants again who gave huge praise for timely action.

Event #2: A huge gopher decided to set up shop under another duplex crawlspace. (Anyone see Caddyshack?) I caught him in the act and after a few failed home remedies I swallowed my pride and hired a pest removal expert to relocate it.

27600

Learning & Outcome: It appears that any significant foundation damage has been avoided but it ate duct work and the holes will have to be covered and blocked. SAVE YOUR MONEY and skip to just hiring a professional. Ended up being kind of a blessing in disguise though because the hired hand is another local RE investor (albeit much more accomplished) that I plan to learn from and maybe someday collab with. The network continues to grow.

Lastly, I made arrangements to part ways with the management company that I'd hired to handle the gopher location mentioned above. In my short experience I'd advise,

a. Handling your own investments as long as possible
b. If you don't want to, properly vet the new management to make sure your expectations will be met.

Cheers!
 

WJK

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It's been a busy month! In the midst of closing on the side-by-side I've hit a few road bumps that have made it all the more enjoyable.

Event #1: The sewage drain at another duplex started backing up on the tenants so I was advised by my preferred (no longer) plumbing company to have it "jetted" out to clear what's called a belly in the line. Long story short, it turns out the damage was more than a belly but rather collapsing orangeburg pipe... for those that aren't familiar, not good at all. So basically I shelled out a ton of money to expedite the pipe collapse. Ended up having to have the front yard dug up to replace everything and the bills rolled in.

View attachment 27598 View attachment 27599

Learning & Outcome: If your city offers insurance for the drain, GET IT. This was my only property that I didn't have covered and thus will take a large L and pay every cent out of pocket. However, I now have very happy long term tenants again who gave huge praise for timely action.

Event #2: A huge gopher decided to set up shop under another duplex crawlspace. (Anyone see Caddyshack?) I caught him in the act and after a few failed home remedies I swallowed my pride and hired a pest removal expert to relocate it.

View attachment 27600

Learning & Outcome: It appears that any significant foundation damage has been avoided but it ate duct work and the holes will have to be covered and blocked. SAVE YOUR MONEY and skip to just hiring a professional. Ended up being kind of a blessing in disguise though because the hired hand is another local RE investor (albeit much more accomplished) that I plan to learn from and maybe someday collab with. The network continues to grow.

Lastly, I made arrangements to part ways with the management company that I'd hired to handle the gopher location mentioned above. In my short experience I'd advise,

a. Handling your own investments as long as possible
b. If you don't want to, properly vet the new management to make sure your expectations will be met.

Cheers!
Your right. I do my own management. Your right. Things do go wrong. Your right. You will have unexpected repairs. You must have an emergency fund for those moments.

Here's my other advice. Inspect, inspect, inspect. I change my tenant's furnace filters and service the on-demand water heaters myself. That way I inspect the interiors and exteriors of my rentals both in the spring and in the fall. That way, I see the inside of each unit. I ask them if there are any maintenance issues. I get them to sign a sheet marking off what I did, their concerns and anything that I see that needs to be done. I walk around the outside. It's amazing how much better they keep my rental units. They co-sign the inspection sheet, so they can't say that we don't do any maintenance. That's particularly helpful if I must evict them.
 
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TurtleSprint

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I got LUCKY!

We always talk about "learn by doing" and this was certainly a learning experience. I closed on that duplex at the beginning of October with a list of renovations in hand. In the weeks before closing I met with a siding contractor referred by a fellow investor and it turned out to be a GAME CHANGER. This was among meeting other larger contractors that aren't cheap. The boss quoted the siding and then offered up their services to work on the rest of the house since it had been left a DUMP. His siding quote was by far the least costly and I quickly realized they did very quality work. Cue the LUCK... the renovations turned out to be far and beyond what I anticipated when I bought the property. However, with the savings from a smaller siding contract and the abilities of the new crew we could budget it all in. Had I proceeded with the popular siding contractors, the siding would have been complete but hardly anything else. Had I not met this crew, I'd be paying tons to renovate the units because of my untrained eye. Shame on me for slipping with the due diligence. But hey, now I know more of what to look for and it will make me a better investor moving forward. Crisis averted.

More recently, I had a HVAC tech conclude that I needed a new furnace and the one I had was shot. In a similar fashion, I pulled in a referral resource to quote a new system between meeting other popular providers in the area. He and I simply changed out the filter which was filthy and certainly causing faults. Everything fired up and is good to go. Another fortunate experience and friendly face on the team.

Moral of the Story:
Your network is critical. Connections in the business have been absolutely PIVOTAL and saved a boat load of cash. I picked up two resources that will certainly add to my success.
 

WJK

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I got LUCKY!

We always talk about "learn by doing" and this was certainly a learning experience. I closed on that duplex at the beginning of October with a list of renovations in hand. In the weeks before closing I met with a siding contractor referred by a fellow investor and it turned out to be a GAME CHANGER. This was among meeting other larger contractors that aren't cheap. The boss quoted the siding and then offered up their services to work on the rest of the house since it had been left a DUMP. His siding quote was by far the least costly and I quickly realized they did very quality work. Cue the LUCK... the renovations turned out to be far and beyond what I anticipated when I bought the property. However, with the savings from a smaller siding contract and the abilities of the new crew we could budget it all in. Had I proceeded with the popular siding contractors, the siding would have been complete but hardly anything else. Had I not met this crew, I'd be paying tons to renovate the units because of my untrained eye. Shame on me for slipping with the due diligence. But hey, now I know more of what to look for and it will make me a better investor moving forward. Crisis averted.

More recently, I had a HVAC tech conclude that I needed a new furnace and the one I had was shot. In a similar fashion, I pulled in a referral resource to quote a new system between meeting other popular providers in the area. He and I simply changed out the filter which was filthy and certainly causing faults. Everything fired up and is good to go. Another fortunate experience and friendly face on the team.

Moral of the Story:
Your network is critical. Connections in the business have been absolutely PIVOTAL and saved a boat load of cash. I picked up two resources that will certainly add to my success.
Good for you. Are you going to rent it long term or flip it? I like holding things while I collect my rents. Even on flips, one year + one day is the key to long-term capital gains rather than ordinary income.

About your rehab experience -- networking IS the key to finding good help. I have relationships that go back 30 or 40 years. And now I'm doing stuff with their kids and grandkids.

Here's another tip. Make yourself a set of notebooks and 3 ring binders. Take pictures that you can print off into your notebooks & binders. Also, keep a ditigal copy for you computer that you can carry around with you. I use one computer file as a daily log for my job. Then I print it off for one of my binders with my picturres of the job as it was completed. Printing it off may seem like over-kill. BUT, I many times forget how bad the property looked in the beginning. By the time I'm done, I have forgotten all the step we took to get it done. Also, if you're in this for the long haul, years from now you'll be scratching your head trying to remember what you did on a project. Or, who helped you with one problem or another. And what was your source for something you now need to find again. No human can remember all of this stuff. It enough to keep the present project on time and within budget. Oh, and why do I make a hard copy? I can always find my notebooks and binders when I need them. My computer has eaten files from time to time. And things have gotten lost in that digital world over time. I tab everything to make it easy to look up when I busy and stressed. It fun sometimes to open a binder and see my past.
 

TurtleSprint

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Good for you. Are you going to rent it long term or flip it? I like holding things while I collect my rents. Even on flips, one year + one day is the key to long-term capital gains rather than ordinary income.

About your rehab experience -- networking IS the key to finding good help. I have relationships that go back 30 or 40 years. And now I'm doing stuff with their kids and grandkids.

Here's another tip. Make yourself a set of notebooks and 3 ring binders. Take pictures that you can print off into your notebooks & binders. Also, keep a ditigal copy for you computer that you can carry around with you. I use one computer file as a daily log for my job. Then I print it off for one of my binders with my picturres of the job as it was completed. Printing it off may seem like over-kill. BUT, I many times forget how bad the property looked in the beginning. By the time I'm done, I have forgotten all the step we took to get it done. Also, if you're in this for the long haul, years from now you'll be scratching your head trying to remember what you did on a project. Or, who helped you with one problem or another. And what was your source for something you now need to find again. No human can remember all of this stuff. It enough to keep the present project on time and within budget. Oh, and why do I make a hard copy? I can always find my notebooks and binders when I need them. My computer has eaten files from time to time. And things have gotten lost in that digital world over time. I tab everything to make it easy to look up when I busy and stressed. It fun sometimes to open a binder and see my past.
@WJK I plan to rent it long term. At least for the foreseeable future. The cash flow is just too good. We'll see what the next couple years brings. I like the idea of notebooks and binders. I've been trying to take pictures to update social media but it hasn't quite caught on for me.
 
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WJK

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@WJK I plan to rent it long term. At least for the foreseeable future. The cash flow is just too good. We'll see what the next couple years brings. I like the idea of notebooks and binders. I've been trying to take pictures to update social media but it hasn't quite caught on for me.
OK. Make it catch-on with yourself. Someday you'll need it! Here's the hidden reason for the pics and the notes. WHEN you must go to court, I have learned that business records kept in the normal course of business are an exception to the hearsay rule. You must be able to show that you always keep those records on every property and every deal you do -- in your normal course of business. Otherwise, your data gets thrown out of court. In other words, on your worst day while you're standing up in court -- and your tenant is talking smack about you -- you can pull out your binder and say, this is what we did, this the way we did it, and this is when we did it. I many times show up for court with a whole pile of binders. For example: When the tenant says that we never do maintenance on a unit, I flip to their record and reply that we did XXX on this date and XXXX on that date and XXXX on another date... and on and on. Then I ask if the judge wants to hear more details or review my pictures. Funny, I win just about every time I must show up in court. This is not legal advice. I do NOT practice law. This is how I learned to do it when I went to law school and it works for me. Talk to your attorney and try it. What do you have to lose?
 

TurtleSprint

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Interesting learnings as of late...

I dove into what seemed like a great deal. Two 4-plex buildings in a somewhat lower income area with little immediate work to put in. Not quite my typical tenant pool but for the income I was all in. A little over $5k/mo gross. Bonus- seller would be lending me the entire down payment. A red flag? Maybe. But from my perspective I'm getting to the point where I can buy with low/no money down.

Near closing the appraisal came back ~$70k lower than the agreed sell price. Ouch! Obviously a deal-breaker. I didn't agree with their metrics so decided to have 1 of 2 buildings re-appraised by another company. Only to have them come back ~$50k lower. The deal is dead. I feel good about spending on the extra appraisal though. Had the results been positive the payback period was quick.

I'm going to take this as a sign that it wasn't meant to be. Although I spent a lot on inspections, etc. there will be better deals out there and clearly I need to brush up on my prospecting. I know the seller so it'll be interesting to watch what happens moving forward. It sucks losing some money but was worth trying. Calling it a blessing in disguise.

Anyone else been through similar? Worth it?
 

WJK

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Interesting learnings as of late...

I dove into what seemed like a great deal. Two 4-plex buildings in a somewhat lower income area with little immediate work to put in. Not quite my typical tenant pool but for the income I was all in. A little over $5k/mo gross. Bonus- seller would be lending me the entire down payment. A red flag? Maybe. But from my perspective I'm getting to the point where I can buy with low/no money down.

Near closing the appraisal came back ~$70k lower than the agreed sell price. Ouch! Obviously a deal-breaker. I didn't agree with their metrics so decided to have 1 of 2 buildings re-appraised by another company. Only to have them come back ~$50k lower. The deal is dead. I feel good about spending on the extra appraisal though. Had the results been positive the payback period was quick.

I'm going to take this as a sign that it wasn't meant to be. Although I spent a lot on inspections, etc. there will be better deals out there and clearly I need to brush up on my prospecting. I know the seller so it'll be interesting to watch what happens moving forward. It sucks losing some money but was worth trying. Calling it a blessing in disguise.

Anyone else been through similar? Worth it?
Yes. Been there, done that. The end of the 1980's was all about OPM (other people's money). I got a divorce and sold out. The market didn't feel good to me. Everyone in my circle felt sorry for me. Then the bottom fell out of the RE market and I was suddenly a genius for selling out. My friends almost all ended up in bankruptcy court, with their hats in their hands, losing everything. Overpaying and having no equity is right up there with jumping off of a cliff without a parachute. Yes, spend the money so you know what you are getting into.
 
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TurtleSprint

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Yes. Been there, done that. The end of the 1980's was all about OPM (other people's money). I got a divorce and sold out. The market didn't feel good to me. Everyone in my circle felt sorry for me. Then the bottom fell out of the RE market and I was suddenly a genius for selling out. My friends almost all ended up in bankruptcy court, with their hats in their hands, losing everything. Overpaying and having no equity is right up there with jumping off of a cliff without a parachute. Yes, spend the money so you know what you are getting into.
Right. I don't plan on ever overpaying. In this case it wouldn't have worked either way with bank lending 80% of the appraised value. Making up the difference would have been unwise and near impossible.

It'll be all the more sweet when I pick up the next property that is a super deal.
 

WJK

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Right. I don't plan on ever overpaying. In this case it wouldn't have worked either way with bank lending 80% of the appraised value. Making up the difference would have been unwise and near impossible.

It'll be all the more sweet when I pick up the next property that is a super deal.
If the bank is lending 80%, then do they know that you are borrowing the $ for the down? And by the bank is in it for 80%, does that give you enough equity for a downturn? Good luck!
 

TurtleSprint

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If the bank is lending 80%, then do they know that you are borrowing the $ for the down? And by the bank is in it for 80%, does that give you enough equity for a downturn? Good luck!
Not quite. So just using imaginary numbers, sell price was $300k but it appraised at $230k. The bank was going to pay $184k and the seller would lend $46k. Still leaving me on the hook for the $70k difference with a $230k investment that I paid $300k for. Not a good deal any more.
 
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WJK

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Not quite. So just using imaginary numbers, sell price was $300k but it appraised at $230k. The bank was going to pay $184k and the seller would lend $46k. Still leaving me on the hook for the $70k difference with a $230k investment that I paid $300k for. Not a good deal any more.
So, IF you don't tell your bank that you are borrowing the down payment... and all banks are insured by FDIC, a Federal agency... I have seen that "little lie" be called fraud... and I have seen the FBI come and put bracelets on the individual and haul them off... It's a no-brainer for the FBI because the seller will record his note and TD. The money is totally traceable -- even if the note is recorded against one of your other properties (electronic banking). IF you disclose on your bank application where you are getting the down payment, you're OK. Otherwise, you can be totally screwed and charged with a "white-collar crime". The years in jail just aren't worth it to me. I can make plenty of money without cheating. Money is fungible. Maybe you feel differently?
By the way, banks lend -- they don't "pay" anything -- other than their rent, business expenses, and employees...
 

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So, IF you don't tell your bank that you are borrowing the down payment... and all banks are insured by FDIC, a Federal agency... I have seen that "little lie" be called fraud... and I have seen the FBI come and put bracelets on the individual and haul them off... It's a no-brainer for the FBI because the seller will record his note and TD. The money is totally traceable -- even if the note is recorded against one of your other properties (electronic banking). IF you disclose on your bank application where you are getting the down payment, you're OK. Otherwise, you can be totally screwed and charged with a "white-collar crime". The years in jail just aren't worth it to me. I can make plenty of money without cheating. Money is fungible. Maybe you feel differently?
By the way, banks lend -- they don't "pay" anything -- other than their rent, business expenses, and employees...
I don't follow. Sorry if I wasn't clear but the bank was always well aware that the seller was lending the down payment.
 

WJK

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I don't follow. Sorry if I wasn't clear but the bank was always well aware that the seller was lending the down payment.
NOT in my 44 1/2 years of real estate experience! What are you writing down on that app? You must sign at the bottom -- and that's what they use for their "got-you" evidence. I have been the broker, the buyer, the seller, the appraiser, the internal major asset advisor... I've even been on the audit team when the Feds take over a bank. But, who am I to question whether your bank knows...
 
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TurtleSprint

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I'm still confused as to the legality at question here. It's called seller carry back. Owner financing? I'm not in the game of doing anything illegal and have no desire to cheat the system.
 

WJK

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I'm still confused as to the legality at question here. It's called seller carry back. Owner financing? I'm not in the game of doing anything illegal and have no desire to cheat the system.
Where is your confusion? Yes, sellers do carry back financing IF it is disclosed in writing to the bank and the bank agrees to that additional loan. That means that everyone is informed on board with the way the deal is structured. When I started in 1976, we had three kinds of loans, FHA 203b, VA, and conventional. Conventional financing was usually 80/10/10. The bank loan was 80%, The buyer came in with a 10% down payment. And the seller carried a 10% note. That system has gone out of the window.
Today, about 70% of loans are sold on the secondary market by passing them onto the quasi-governmental corps. And those corporations are insured by the Feds. What you are calling a bank is probably a broker situation where they are selling the note. Only 25% to 30% of loans are held in portfolio by banking institutions.
IF your application does not match your deal, and anything happens on the loan, or to the real estate market in general (like a Chinese virus or a recession), the loans are many times reviewed. The whole package can be put under a microscope. I have been hired to re-appraise properties or review piles and piles of property files -- hundreds at a time. This also happens when a loan portfolio is sold to another institution or the portfolio is placed in the secondary market.
I have seen situations where the loan officer and the borrow knew the details of the deal, but the paperwork said something else. Oops...
Since it's your signature on the paperwork, make sure that everything is disclosed to the underwriter. Winks and nods are not a defense.
 

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