The final step in this process is to sell the note. The average real estate homeowner sells his home for $225,000 and sometimes he will get more than $225,000. But what if the homeowner took that $225,000 and paid off debt, or invested it, and divided it into several modest monthly payments?
Let’s assume the homeowner has an IRA balance of $175,000 and he wants to use the equity in his IRA to purchase a note that will provide him monthly interest payments of $900.00.
The IRA balance is reduced to $175,000 as a result of the monthly payments, and the balance is repaid to the IRA by the monthly Proceeds Receivable (or Mortgage) that the IRA holds. The IRA is reduced from $175,000 to $175,000, making the “loan” and “note” both Seller Financing and Real Estate Financing.
Suppose we could approach the IRA owner and say, “Mr Owner, our company We Buy Houses Louisville KY offers to sell your current Real Estate Note and we will pay you ‘the full face value’ of the note if you agree to owner financing the property.”
Would Mr Owner Consider the Offer?
He might, and this is what our company will charge you as part of our token offering to Purchase Real Estate Notes. We make this charge because we believe the token offering will produce the largest value for the new Note owner & will preserve the most benefit for the Note holder. We Buy Houses Louisville is willing to provide our company or an associate who is knowledgeable about IRA investing to manage the deal for the Note owner. I have done it before and we will continue to do it.
If he would accept the offer, he would receive the $175,000 IRA balance which, in turn, would provide the Note holder with the highest yield and most benefit. Instead of receiving a small monthly income, he would receive a long-term value of $900,000, the future proceeds of the sale, plus he would retain the first lien on the property, the IRA received at the sale which would provide him ongoing income in the future.
As the Noteholder, he would not have to worry about cleaning up his portfolio of investment properties after receiving the monthly income. As the IRA owner, financing his own retirement would allow him to plan for his later years more effectively and he would not have to worry about defaults on his investments and the possibility of conducting further transactions with his IRA.
This could be the ideal solution for the self-employed IRA owner with uneven income or an irregular tax shape.
How does the investor provide the note holder with the funds?
He can offer to pay the down payment and closing costs and funds from his personal account for the purchase. The IRA owner could choose to receive the monthly income however he likes – bi-weekly, weekly or monthly.
If you’re wondering, “If my IRA owner can benefit from financing his retirement notes, why should I offer to purchase all or part of his notes?” the answer lies in many factors including his age, income and other assets.
But in the end, the bottom line is the Note owner will receive better long-term benefits if he receives monthly cash flow from his own retirement working investments, rather than receiving his income as a small monthly pension check.
Selling the note is the last step because the funds can be used for other purposes. Advise your Note holder carefully and make him comfortable with the approach and the terms of the sale. Send him copies of his financial statement and the last 2 years of tax returns so he can review and understand the offer before closing.
If you provide the Below is a suggested formula used in Dollar or Ratio Value formulas:
DCR = Annual Gross Rent Multiplier (Debt Care) divided by Sale Price
1. DCR = Annual Gross Rent Multiplier (Debt Care)
forgot calculation (The format used for this calculation requires you to number the expenses following the cost estimates.)