As we all know, if you're involved in real estate at this time, whether as a buyer, seller or as a professional realtor, it's a tough business. Everyone wants to sell and not everyone wants to buy. So now is the time to be creative. More on creativity in a second.
In today's market as compared to 12 or 18 months ago, lenders are not throwing their money at every Tom, Dick or Harry that wants to buy real estate. In addition to tighter lending criteria, buyers may not have enough cash for a down payment or more precisely, the amount the lender requires. Here's where the seller steps in.
Let's say you, the seller have a contract of sale on your $1,000,000 condo but the buyer can only qualify for 80 percent LTV (Loan to Value). The buyer only has $100,000 or 10 percent in cash. In most cases, the sale cannot be completed because of the shortage of the other $100,000 or 10 percent. The buyer has good credit but is just short of cash. Here's a possible solution to completing the sale and the seller making a few extra dollars.
As the seller offers to hold a second mortgage for the $100,000 the buyer is short. Some people call it an 80-10-10. I call it a smart move. In today's market, holding a second mortgage could earn 9 percent or 10 percent interest. At 10 percent, the seller would earn an additional $834 per month in income. The mortgage could be interest only for a period of one or three years. Over that period of time you could earn an additional $24,000 to $36,000. You can't receive that return at a bank.
Is there a risk factor? In anything we do there is a risk factor. My next column will explain how to do an amortized mortgage and how to limit your risk to zero.
Ric Cornelius is the Broker/Manager of Sand Key Realty Sales and Rentals, Inc. Sand Key Realty has three offices with 40 agents. One office is at 740 S. Gulfview Blvd., Clearwater Beach, 727-443-0032; the second office is at 2701 Gulf Blvd., Indian Rocks Beach, 727-595-5441; and the third office is at 309 Belleview Blvd., Belleair, 727-461-4200.