Books

  • Jeff Michael: Repair Your Credit and Knock Out Your Debt

    Jeff Michael: Repair Your Credit and Knock Out Your Debt
    I highly recommend this book because I wrote it.

  • Edie Milligan: Tips from the Top: Targeted Advice from America's Top Money Minds

    Edie Milligan: Tips from the Top: Targeted Advice from America's Top Money Minds
    I have about a dozen entries in this book.


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Comments

Doesn't sound like you're missing much. It sounds like you'd be knocking 20% off of your asking price and spending money on a lawyer when this person defaulted on the loan and lost the house.

The advantage is that you actually sell the house, instead of potentially sitting on it for months until you find a better buyer. I agree with you though that this isn't a good option. Most lenders don't allow seller carried seconds or if they do they are limited to around 6%. If the buyer needs 20% you are taking the risk instead of the bank, and you don't get anything extra for your trouble.

Advantages to the seller _can_ be numerous, in the right circumstances. Often, the potential buyer is an R/E investor and is simply trying to preserve capital (use OPM) and the carryback request does not necessarily reflect poorly on their cash or credit position.

A carryback is most appropriate when the seller has lots of equity and a 20% or more carryback would represent decent income on their existing equity. If you don't have the equity, then a seller carryback is done with an installment contract, which, because of your first-position mortgage holder, will almost never work as the buyer's lender would have to be in second spot (it's just not going to work).

Bottom line: unless you are a sophisticated or seasoned R/E investor, carrying a mortgage is probably not going to make any sense to you. If you are, it can be great if you're in the right circumstnaces.

I recently seriously considered selling a house under an installment contract in which I had a ton of equity (well into multiple 6 figures). The advantage is that I could charge a much higher rate of interest than the banks, get some cash (down payment), and if the buyer defaulted, I don't have to initiate a forclosure by only an eviction to get rid of him.

Don't mean to go on, and it's complicated, but there are many ways it makes sense, but not necessarily for you in your current circumstances.

Thanks all for the comments. It definitely isn't something I'd want to do right now (I do have the equity, but I'm counting on that to make a large down payment on the next house). I guess I could imagine a situation where the seller was desperate to unload the property and might be willing to carry the risk, but that's not me.

I've also heard that there may be a tax advantage to offering a carryback mortgage (spreading the capital gains throughout the term of the 2nd mortgage), but once again, not for me.

My experience - for the nickel it's worth - is that Richard's hit on "OPM" is spot on but maybe a bit generous and he's way more sophisticated than the average guy. Too many buyers either have no capital, or are stretched to the max, and that's why they want a seller carryback, pure and simple.

Carrybacks ain't you, Babe.

This may be too little too late... But I'm trying to buy a house with an owner carryback. I'm asking for owner carryback because the house won't appraise for what they are asking for it.

It may be worthwhile to note that I'm a business owner and have credit scores of 750 and up.

Interesting comments. I hadn't thought about the investment opportunities for a carryback. However, it would depend a lot on where you lived. Multiple 6 figure equity doesn't happen much in the midwest, but on the coasts...

Now with the $700 million buyout, I'd love to see this situation handled today in this new market.

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