Buying Real Estate with Private Money
Subject to will get you part of the way, and a Real Estate Promissory Note will get you the rest of the way. If someone is willing to sell you their property subject to, but they want some money out of the deal, but you don’t have the money, what do you do?
You have to give them a Promissory Note. You are going to create some money out of thin air. The United States Government does it all the time.
What is a Real Estate Promissory Note?
A promissory note is simply an I.O.U. It is an agreement to pay a certain amount of money at a specific time or in payments. It’s perfectly legal. Anybody can do it, for anything, at anytime.
How to Get Sellers to Accept
You get sellers to accept by making multiple offers.
You make a cash offer, which will be pretty low. Then an all-terms offer which would be a subject to and a note. And then a mixture. You decide what to put in the mixture according to what the people need, which you learned during your interview with them.
Say they need to buy and car and need to move. Well the move is going to cost them $800 and the cost is going to cost them $2000 down and a payment. Therefore, you’re going to give them $3000 and make sure your payment covers what they need.
Creating a Real Estate Promissory Note
It’s easy. You don’t do anything except go to the title company and tell them that you want to create a note. You tell them the terms and they create it. It’s that simple. You can also have your real estate attorney do it, but the title company will usually cost less than the attorney will.
Basic Information for Real Estate Promissory Note
The parties and their contact information
The amount, if any, being paid as consideration or equity
Cashing being paid to the seller
Collateral pledged as security
Address and legal description of the property
Amount of the note
Terms and when the total payoff is due
Percent of and type of interest (simple or compound)
Payment and when they are due (any amount…it doesn’t have to be an amortized amount. Offer to pay them what you can afford to pay them each month)
When and where the payments are to be paid and to whom
Balloon payment, if any; a balloon payment being a lump sum at the end
What assurance does the seller have that the Real Estate Promissory Note will be paid? Their assurance is two pieces of paper: a note and a mortgage. As part of the closing, the title company will record the promissory note and the mortgage or deed of trust at the courthouse. This means that when the house is going to be sold and the title company contacts the courthouse, they will be told that the house cannot be sold because there’s a lien that has to be satisfied first. That’s the seller’s protection.