Zoom Call 11.08.22 Sham Reddy Non-Conventional Financing for Home Buying

By
Real Estate Agent with Mapleridge Realty, CT 203-206-0754 REB.0759001

Creative Non-Conventional Financing for Home Buying

Creative Non-Conventional Financing for Home Buying

The Zoom call for Nov 8 was presented by ActiveRain member, Sham Reddy.  He's been in real estate since 1992 and his early deals were as an investor and also helping others with their real estate transactions.  

In his career he has been active as a member of his local Real Estate Investors Association as well as local community organizations.

As his activities as an investor, he has worked with a number of people that have allowed him to appreciate creative ways to finance properties as an investor.  Some he has used himself as well as picked up from his fellow investor associates.

Creative Non-Conventional Financing for Home BuyingWhen attempting to get the seller to sell the property, especially one that has been on market for a while, it can be done without closing out the mortgage assuming the seller is in agreement. There are several ways the contract can be written, as noted in the image, but with each example, it is imperative that the insurance remain in the name of the seller. 

With a Land contract, the payments must be made to the original mortgage company. With the negotiated sales price, the seller will then continue to make full payments and the buyer will then occupy the property in order to make necessary improvements before finalizing a lease/purchase in order to refinance.

Creative Non-Conventional Financing for Home BuyingPurchasing Without an Underlying Morgage.

If the seller does not have a mortgage and does not need the balance immediately, they can do the financing and as the buyers may have problems getting financing with an institution, the seller can charge an interest rate higher than conventional and will appreciate a gain significantly larger than having the money sit in the bank or taking risky stock investments. 

Additionally, the seller does not have to pay tax on the capital gains and can stay in this position for at least 3 to 4 years if they intend to try and claim the Federal Capital Gains exemption.

If the write up the contract as a note, then they can turn around and transfer the note to another lender or person. The note is still connected to the buyer of the house

Buying Packages of Non Performing loans

Creative Non-Conventional Financing for Home Buying

 For someone with more liquidity, they can buy non-performing notes from an institution at a discount buy as much as 30-40% and hold the notes while still retaining the servicing companies that the original note holder used.

In a down market with lenders seeing a large number of non-performing loans, institutional buyers will purchase bundles of notes at as much as 50-60% discount, while still using the servicing companies. 

These investors may then create smaller bundles to sell at a reduced rate yet still larger than their original purchase so as to make a quick 20-25% return.  While it may sound and have a feeling of non-conformity, it is very much a legal transaction.

Loan Assumptions: FHA & VA

It is possible for a private individual to assume an existing loan but there are certain criteria that must be met for it to happen. The home may not have to be placed on market, but these notes can be assumed.

 

Private Lenders or Family

Creative Non-Conventional Financing for Home BuyingThis is getting popular with real estate investors as most lenders require a minimum of 25% down for an investor to make a purchase and if they are looking to remodel to flip, they may not have the funds. This would send them to private lenders. Also, banks would require an investor to have ay a minimum of 6 months reserve to make payments as well as taxes. 

It is also getting to be a requirement that an investor show a 2-year timeframe of activity in real estate before a bank would lend them money. This is essentially similar to a self-employed person.

These requirements would send an investor to a private money lender.

A private lender can charge higher interest rates as well as points. It doesn't matter whether it is short- or long-term financing.

These notes can be interest only loans presuming the investor is going to carry the note for a short term. Conventional government rules do not apply as the government would not be involved.

Hard Money Lending

Creative Non-Conventional Financing for Home BuyingPeople will resort to hard money lending when they cannot get conventional lending. 

Most hard money lending is done for short term work such as fix, and flip and interest rates would be higher in the range of 10-12% with 5-6 points.

Transactional Funding

Creative Non-Conventional Financing for Home Buying This is most common when the funds are going to be used for a single transaction such as a flip and purchase. 

Funds will be carried from one closing to be used in a second closing and cost could be 5-10% of value being used.

Self-Directed IRA Funds for buying/Lending

Creative Non-Conventional Financing for Home Buying A person has the ability to convert retirement funds into a self-directed IRA and have an institution hold the money for them to be drawn when needed.

Fo example, a person wants to purchase and rehab a property that has a value of $200,000 and may require an additional $100,000 to rehab. They draw the funds from their traditional IRA and make the purchase. Once the project is completed and they sell that property for $450,000, that money must go back into the trust with no tax penalty. It then grows tax free.

The money can be lent to others but no straight-line family.  Interest rates would be higher than conventional funding and as the property is a note with the property used as collateral, they have minimum risk. If the investor defaults, they get title to the property and can turn around and sell it at a profit.

Lender Financing on REO's and Short Sales

Creative Non-Conventional Financing for Home BuyingMany times the bank holding the REO or even a short sale may be open to taking a short term note on the property in order to get it liquidated.

As the homes may be vacant, they are more willing to allow for a quicker transaction to prevent vandalism to a property. 

Sham was very accommodating with questions and also offered to answer questions at a late time from someone that would want better clarification to any of his points.

Creative Non-Conventional Financing for Home Buying

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Edward (Ed) Silva
Broker Associate

Serving Central Connecticut Sellers and Buyers

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Comments (23)

George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Ed, Sham presented several financing options that many who attended the ZOOM Meeting might not have been aware of, and he was very knowledgeable about all of them.

Nov 10, 2022 02:14 PM
Sham Reddy CRS
Howard Hanna RE Services, Dayton, OH - Dayton, OH
CRS

Thanks for posting ED.

Nov 10, 2022 02:48 PM
Hannah Williams
HomeStarr Realty - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-820-3376

Ed Silva Sham gave a great presentation. I do work with many investors that fix and flip. His insight helped me as I was contacted shortly after our Zoom meeting by a group of hard money lenders that I might have not used but now will seriously consider 

Nov 10, 2022 03:27 PM
Leanne Smith
Dirt Road Real Estate - Golden Valley, AZ
Relocation to NW AZ with elbow room & more freedom

Apologies as I missed this one.  It seems Tuesday's mornings are becoming the time of choice for my sellers and buyers. 

Nov 10, 2022 04:46 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Ed:

Sham did a great job on his presentation on financing and your summary captured it so well.

Jeff

Nov 10, 2022 09:28 PM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker/REALTOR® - Kalispell, MT
Helping your Montana dreams take root

Sham did a great job, packing lots of information into a short period of time!

Nov 11, 2022 04:39 AM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Ed - Sham's presentation was full of very interesting financing information.

Nov 11, 2022 04:54 AM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Nina Hollander, Broker   He offered very educated insight into creative financing for investors or people with tough credit.

Sheri Sperry - MCNE®   also, buyers that are on the line for credit

Nov 11, 2022 05:03 AM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Anna Banana Kruchten CRS, Phoenix Broker   Some were very new to me, and he offered alternatives for people willing to take a slight risk for investing as well.

George Souto   You didn't raise any questions as to the possibilities on any of them

Nov 11, 2022 05:05 AM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Sham Reddy CRS   Your experiences showed through very well. It's as if you were taking a book out of the ancient money lenders.

Hannah Williams  Hard money lenders are often looked at as a last resort, but he offered options that give one thought

Nov 11, 2022 05:08 AM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Leanne Smith   Business and family are always first and not in that order

Jeff Dowler, CRS   He offered a lot of information and was willing to take calls after as well. Thank you

Nov 11, 2022 05:09 AM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Kat Palmiotti   He really gave out a lot and was most appreciative of Rocky Dickerson 's help with the power point presentation

Grant Schneider  Options that many would not even have considered before

Nov 11, 2022 05:11 AM
Carol Williams
Although I'm retired, I love sharing my knowledge and learning from other real estate industry professionals. - Wenatchee, WA
Retired Agent / Broker / Property Manager

Hi Ed,
I so appreciate this since it turned out I missed the presentation. Your summaries are amazing!

Nov 11, 2022 07:18 AM
Ginger Harper
Coldwell Banker Sea Coast Advantage~ Ginger Harper Real Estate Team - Southport, NC
Your Southport~Oak Island Agent~Brunswick County!

Really great info.. Thanks for posting to give us knowledge on this.

 

Nov 11, 2022 07:48 AM
Margaret Rome Baltimore 410-530-2400
HomeRome Realty 410-530-2400 - Pikesville, MD
Sell Your Home With Margaret Rome

The next best thing to being there; is your recap of the presentation.

Nov 11, 2022 07:48 PM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

I am certain all who attended the Tuesday Zoom call benefitted from their attendance, Ed.

Nov 11, 2022 08:03 PM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

CONGRATULATIONS Ed, on having this blog FEATURED in the Old Farts Club group!  

Nov 11, 2022 08:03 PM
Wanda Kubat-Nerdin - Wanda Can!
Red Rock Real Estate (435) 632-9374 - St. George, UT
St. George Utah Area Residential Sales Agent

Was having lunch with a very special past client who has become a very good friend, so I missed this one. Sham is very versed in real estate investing and his longevity in the industry is impressive. Thank you for the very detailed re-cap, Ed, much appreciated!

Nov 12, 2022 11:59 AM
Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

Thank you so much for the very detailed recap, Ed! Sham did an impressive job and I love reading that others have already been able to put his tips into use.

See you Tuesday!

Nov 12, 2022 07:59 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Thanks once again for the recap, Ed. Sham Reddy CRS did an excellent presentation for us. 

Nov 13, 2022 05:27 PM