Question 1

What is Seller Financing (SF)?

Proxima · Accepted Answer

It's a Purchase & Sale agreement where the transaction is:

partially in cash or and the rest is financed by the Seller or

financed by the Seller entirely

In this type of transaction the Seller typically receives regular monthly payments (installments) in addition to a possible, initial downpayment that is credited towards the purchase price. There can also be no downpayment, that's when the whole amount is financed.

It's similar to a regular bank mortgage loan, and it's equally secured by the property that acts as collateral and security for the lender. The Seller can be described as "the bank"; despite different rules, generally more favorable than for banks and other large lenders, it holds a very similar position in a Seller Financed deal.

The Seller carries a note for the installments, which can usually be easily sold for cash if the Seller opts to, and a mortgage for security that allows to force the sale of the property in case of breach of contract. The note can be recorded to notify the general public of the existence of a secured loan on the property, to put the lender/seller in a strong position.

Proxima Investors are the financed as Buyers and typically we simultaneously sell on Seller Financing to our end Buyers also. We extend credit in a mirrored deal, or we sell on a variation of lease-option, depending on their Buyer. Depending on the circumstances and what appears to be the overall best type of deal, we may lease, sell conventionally, hold or whatever seems best.

Seller-Financed sales are executory contracts that have a variable duration; we classify them as short-term (5 to 7 years), medium-term (7 to 15 years), and long-term (15 to 30 years or longer). Most Seller-Financed deals that we're involved in as Proxima Investors, are short-term.

Like many other Deals on Terms, Seller Financing offers several, strong Tax advantages that a Seller can and should evaluate with their Tax Advisor as each Seller has a unique tax position. We strongly recommend a thorough analysis to make the most of the tax benefits that Seller Financing offers to Home Sellers.

Seller Financing is particularly popular in periods of time when interest rates are particularly high, like in the late 1970s and early 1980s, and more recently, 2023/2024, when rate hikes are needed to tame inflation.

In such economies, the amount of interest that needs to be paid is a great incentive for Home Sellers who want to sell fast, easy and cash in the most, and certainly more than in a conventional sale that involves an institutional lender or bank.

Seller Financing is also called in many other ways including Owner Financing, Purchase Money Mortgages, Owner Carry and many similar variations without significant variation in meaning.

Question 2

What's an Assigned Lease-Option (ALO)?

Proxima · Accepted Answer

An Assigned Lease-Option in residential real estate is a specific type within the broad category of transactions with a Lease with the Option to Purchase a home on preagreed terms, within our range of real estate deals on terms.

It refers to a legal arrangement where a Real Estate Investor enters into a Lease Option Agreement with a Property Seller and then Assigns that Lease Option to another buyer, usually with a markup or a fee to realize a profit having setup the deal as a facilitator.

The bundle of rights transferred consists in the position in the original Lease Option contract with the Owner of the Property or with the Buyer or, alternatively, it consists in the position in the Agreement with the Buyer.

The transfer of such rights happens with an Assignment agreement, with both parties, Owner and End Buyer on Lease-Option.

Whatever the position, the exact Rights and Obligations transfer and put Owner and End Buyer (on a Lease-Option) in a direct relationship with the removal of the real estate investor whose exit is definite, upon approval by the parties of the new Lease-Option Agreement.

It differs from the Mediated Lease-Purchase as the deal becomes completely owned by the sellers who are the only one in control of the lease-option on the owners' side, while the buyers deal directly with the

Based on this setup, the owner will have a turnkey lease-option deal; it's ideal for the sellers who don't want or can't market the property on terms and design a deal on terms. Tired landlords are great candidates, but so are those who want or need to extract as much equity and value as possible from the deal. Other categories of sellers are good candidates, as those who want direct and total control of the relationship with the end buyers, or the buyers themselves, for whatever reason, may want such direct relationship.

Typically, the deal goes into effect with the critical requirement of seller approval, which is fair as the sellers are going to be handling the deal to the end, with the exercise of the option and the execution of the Purchase & Sale of the property.

The main benefits for the Buyer are the ability to anticipate possession of a home while setting up for the purchase, avoiding an immediate need for financing, and, for the seller, likely tax benefits, higher sales price, and further income in the form of regular cash flow. It also helps the house sell more quickly than conventionally, as it's a rarer opportunity for a buyer. The buyers, therefore, often reduce or waive contingencies entirely, are willing to pay more than in a conventional transaction as it's less appealing and, in the long term, more expensive for them.

Question 3

What is a Real Estate Purchase Subject To Existing Financing (S2)?

Proxima · Accepted Answer

As real estate investors, when we, Proxima Investors, buy a property "Subject To Existing Financing" (often shortened to Subject To, or Sub To) means that we, as buyers, take over the responsibility for the seller's existing mortgage payments instead of getting our own loan, avoiding the burden of the long and uncertain process and making waiving the financing contingency possible.

So it's a simple sale in which, typically, the existing mortgage stays in place and it keeps getting paid down and eventually in full, following the payment schedule of the borrower who is selling.

Here's a breakdown:

The seller doesn't pay off their mortgage loan: The seller doesn't go through the process of closing out their current mortgage loan, avoiding the costs and paperwork, but very importantly, the time and hassle required for the process.
Proxima Investors assume the payments: As buyers, we agree to make the mortgage payments on the existing loan in a legally enforceable contract that reflects and respects the terms of the mortgage loan agreement.
The existing loan balance becomes part of the purchase price: The unpaid balance of the seller's mortgage is essentially added to the purchase price you negotiate for the Seller's equity position.

Advantages of Subject-to Existing Financing for Buyers:

Lower upfront costs: We may not need a down payment or many closing costs since you're not getting a new mortgage.
Faster closing: This approach can bypass the traditional, burdensome, slow, and uncertain loan approval process, which is very expensive anyway, leading to a quicker and more convenient sale.
Potentially lower payments: If the seller's existing interest rate is lower than current rates, we could get a good deal that allows us to also resell more easily and quickly as a bonus for all parties.
Easier qualification: This option can be attractive for investors who can avoid the need, in full or in part, for an expensive and complicated investment loan with all its negatives.
Sanctioned by the Housing and Urban Development Federal Agency (HUD): Presented as an option on lines 203 & 503 of the Federal HUD-1 Settlement Statement, it is legal in all states.

Disadvantages of Subject-to Existing Financing for Buyers:

Limited control: We can't easily modify the terms of the existing loan (interest rate, payment schedule).
Limited financing options: We can't leverage features like down payment assistance programs offered with traditional mortgages.
Potential for hidden issues: The existing loan may have prepayment penalties or other restrictions that we must be aware of through disclosures, review and research (our due diligence).
Sophisticated, niche method of purchase: Although very popular in the early 1980s and during other periods of high mortgage rates, it became less used with the lowering of the rates, but it's coming back in this tight credit environment. As an option new to many home sellers, they must put some thought into understanding all the details and features of this type of deal to determine if it's a viable option, based on the goals, needs, and expectations of the sale.

Overall Considerations:

Market interest rates: Subject-to might not be ideal if current rates are lower than the seller's existing loan. Reduced costs and paperwork may still make the difference in favor of this method.
Property condition: Any necessary repairs and potential costs have to be factored in, before buying subject-to.
Legal and Tax implications: We should all consult with professionals to understand the legal and tax ramifications of this type of purchase, as always. Finding the right professional with specific experience is absolutely critical.

Proxima Investors have completed many of these transactions and they are often one of the simplest ways to purchase and sell homes and real estate in general, although every situation is different and another type of transaction may better suit a specific situation.

Question 4

What is a Mediated Lease-Purchase (MLP)?

Proxima · Accepted Answer

It's a Lease-Option Agreement, typically between the Home Seller and Proxima Investors, who turn around and simultaneously mirror and replicate the deal with a third-party homebuyer. Proxima Investors' buyer takes possession, but Proxima Investors is responsible towards the Seller until the end of the MLP contract.

It's Mediated because Proxima Investors are the main tenant-buyers throughout the transaction and deal until the final Purchase & Sale and the party directly responsible towards the Seller.

It's Lease-Purchase as it works in a similar way to a Lease until the final Purchase, in compliance with the Lease-Purchase agreements that are linked to the same property.

Proxima Investors have direct contractual relationships with the Home Seller and with the Homebuyer separately. There is no direct contractual relationship between the Home Seller and the HomeBuyer. That's how Proxima Investors are a buffer or a shield for the Sellers; they are the mediating investors and answer to the Home Seller, while the End-Buyer answers to Proxima Investors.

There are typically monthly payments for the Use & Occupancy of the property, a term of expiration of the agreements, rules for the maintenance and upkeep of the property, and a final date for the Purchase & Sale.

In the industry, variations of a Mediated Lease-Purchase can be found to be called Sandwich Lease Options, but at Proxima Investors these deals have a defined framework that doesn't always perfectly match the type of deals that other real estate professionals and operators may do.

Lease-Options in general are a broad category that includes many variations, and a Mediated Lease-Purchase is just one of them. It may suit some Home Sellers and Buyers, but not others. Statistically speaking, it's one of our most popular formulas, as it offers many of the pros of lease-options, without the responsibilities and effort. Since these responsibilities are very limited in lease-options compared to other real estate transactions like long term rentals, or labor-intensive transactions like short-term rentals, we are more than happy to stay involved in this type of deal as long as we set them up. We do not take over others' deals, as we do not have the comfort and reassurance that they were set up properly. Since in a Mediated Lease-Purchase we are responsible towards the Seller, the deal needs to meet our minimum standards of comfort and security.

Residential Real Estate Investors

What is a Mediated Lease-Purchase (MLP)?

What is a Mediated Lease-Purchase (MLP)?

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What is a Mediated Lease-Purchase (MLP)?

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