Buying on Agreement for sale and re-selling with seller financing

[Debbie]

Has anyone bought on seller finance (Agreement for sale) and re-sold to their buyer on seller finance?

Ron`s teachings are to buy on seller financing and re-sell to my buyer with seller financing (not lease option). This strategy allows you get a larger down payment.

Barry McGuire`s booklet page 6 says "BIG WARNING" that he has never been involved in or even seen this scenario but if you have an interest in a property, as long as you are not contractually prohibited from doing so, you can usually sell your interest and find a way to secure it.

So if Barry doesn`t know how to do this then I`m sceptical whether it can be done at all. (After all Barry is very knowledgeable and experienced). I can only imagine what a lawyer who is unfamilar with these strategies would say...could make for difficult closings maybe?

Does anyone have any experience or knowledge with this strategy in Alberta?

Debbie

 

[Thomas Beyer]

QUOTE (Debbie @ Oct 23 2009, 12:23 PM) Has anyone bought on seller finance (Agreement for sale) and re-sold to their buyer on seller finance?..
In an agreement for sale (or wrap mortgage) you do not own the property YET. You agree to buy it in the future, by way of $s today, some $s every month (so that owner can pay his mortgage) and then some more $s in the future.

If you now sell your interest, the original agreement needs to be set up so that you can assign/sell your interest. Thus, on the buy side specific language needs to be in the contract ! In the two commercial agreement-for-sale situations I have been involved in so far (out of 30+ transactions) this language did not allow me to do that.

However, I do not see a reason, if the original contract is set up properly, why you couldn`t do it !

This risk (hence Barry`s language) with assignments is what happens if the ultimate buyer defaults after a few months of payments. You as the middleman may still be liable .. and even if not liable may be sued. Hence the big fat warning and extra caution !!

Some things work well in theory but not so well in practice.

In the overheated condo market of 2007 we sold one large 100+ suite asset and it was immediately assigned (unbeknownst to us).. for big $s to us .. but a 2nd even larger deal was assigned and did not close as planned and we ended up in court for 18 months with the middleman (we ended up winning eventually) .. so be prepared for a big mess if contract are not set up properly !

 

[neill]

Curious to hear Barry`s answer on this, as a deal that we are setting up is essentially structured this way.

Thomas, thanks for your insight - it carries a lot of weight with us!

 

[BarryMcGuire]

Thanks for those kind words.

As always, Thomas Beyer`s comments are spot on. Please re-read those.

Thomas commented on the importance of having the right to assign your interest in an Agreement For Sale (AFS) or, really, any contract. Sellers don`t like giving buyers the right to willy-nilly replace themselves with some buyer the seller has never heard of. The AFS Financing Schedules that I provided as part of my package at the Ron LeGrand Quick Turn Real Estate event both recognize the importance of assignability. The Buyer`s Schedule is designed to give you assignability. Fight hard to keep that right when negotiating the terms of the Financing Schedule. The Seller`s Financing Schedule, on the other hand, recognizes that if you are the Seller, you want control and therefore don`t necessarily want to give the buyer the right to assign. Watch for buyer`s trying to expand this right and resist it. (See how we huff, puff and blow?! That`s what we lawyers do...)

Now specifically for the posters here, I reiterate one of Thomas` points; this type of scenario is not well known, risky, lengthy and expensive in terms of enforcement if your buyer goes bad. Your seller will certainly be coming after you.

A possible alternative: if your buyer needs a lot of financing, consider turning them into a tenant with a lease-option, and the biggest chunk of option money you can get. You get some money now and your buyer (now tenant) gets to prove their worth as a tenant. If they are a tenant rather than a buyer, you have more control of the property if they go bad.

The only way I like the seller financing strategy is if you can assign your interest in the AFS for all the profit you are going to get from your buyer. Then the seller financing is really only the seller financing you negotiated (referred to as Unpaid Seller`s Equity in an AFS) in your original deal with the seller. If they pay you enough for the assignment, then they have a lot at stake and are less likely to default with the original seller.

As with all new strategies, please go slowly (conservatively) and educate yourself. Make sure your lawyer is involved right from the beginning. Consider attending my `Deal-Ready Documents` Focus Workshop on November 21st. It is specifically set up to teach AFS, Lease-Options & Joint Ventures - understand the strategies and know how to instruct your legal team.

Hope this helps,
Barry

 

[Debbie]

[quote name=`BarryMcGuire` date=`Oct 26 2009, 09:29 AM` post=`69199`]
Thanks for the detailed response Barry!

I understand the buying on seller finance and then selling on lease option and the advantages to that.

A question on the seller finance strategy of assigning my interest in the AFS for all the profit I am going to get from the buyer. To do this would I complete the custom real estate purchase contract with AFS clause thats in your forms pkg. and then just use an "assignment contract" to assign the deal? Would I need to have the actual AFS contract done up or would my buyer have the AFS contract prepared?

Thanks
Debbie Niessen