posted by BOBBY on .
1.How and why would a seller make a sale to a buyer that has no money the seller can use? In the event that the seller does not need the money, the seller will gain by holding PAPER. In this event I sell you the house, you pay the closing costs and sign for a mortgage. The mortgage is payable to me. NOW I EARN 6% on my mortgage value instead of selling it to the other guy, getting cash and earning 3% on the money in the bank.
I'm no business man but I need to point out several tbings.
a. You are earning an extra 3%; however, you also have the risk that the buyer can't make the payments in which case you must pay them or lose the house AND you don't get any interest.
b. You are earning an extra 3% but on how much? Not much I don't think. The buyer pays you, you pay the lending agency, and that leaves you with 3% of the difference between the payments to you and the payments you make to the lender.
c. Actually, the money you make may be less than that because you could choose to live in the house. Instead, you must be paying rent or house notes on another house which means you are paying for two houses PLUS INTEREST ON TWO HOUSES.
d. Personally, I don't think it's such a great deal. As I said, however, I'm no business man. There may be those who think it is a good deal but I would prefer to live in the house and take the money I would pay for rent (or for a mortgage on another place to live) and purchase insured general obligation municipal bonds. And the money I would make from the bonds each year plus the money I would save from not paying taxes on that money would make a tax equivalent amount of about 6-7%. That's better than 3% any day of the weak AND it doesn't assume the risk of a second mortgage.
day of the weak AND it doesn't assume the risk of a second mortgage.
OOPs!. I proofed before I hit the submit button but I didn't catch the "weak" for "week."