Page 109 - Trump University Commercial Real Estate 101

Locking in Y our Profit

costs are a deductible expense to him at the closing and he won ’ t pay
taxes on that extra money. Most sellers are willing to do this.
Just be certain of two things: The property appraisal must support
these extra dollars for repair; otherwise, why are you buying it? Second,
you ’ ll need to redo your numbers and make sure you still make a profi t
at the higher purchase price.
Some sellers offer to lower the purchase price by the amount of
the repair allowance and have you pay for the repairs. Again, this

means you must finance those repairs somehow, and that can be a pain.
It ’ s better to have the repair allowance built right into the deal.
The purchase price section of the LOI is also where you ask the seller

to hold any owner financing. Some sellers own properties free and clear
of any debt. If you never ask for seller fi nancing, you ’ re unlikely to get
it! Some sellers will give you much or all of the financing you need for

the deal. You can ’ t count on it, but it ’ s worth asking.
Most likely you will be asking for a second mortgage of between

10 and 20 percent. First you must find out if your primary lender will
even allow a second mortgage, in the form of seller fi nancing. Some
will, and others won ’ t. Such a loan is called subordinated debt . If you
truly need it to make the numbers work, tell your mortgage broker to
find a lender who will allow it.

When you prepare your LOI including a proposal for owner

financing, be sure to start the offer process in a way that benefi ts you
the most.

The first offer I always make is for the principal to be paid in fi ve
years . Notice that I didn ’ t say anything about interest or payments.
What I ’ m asking for is a fi ve - year loan to be paid off in five years in

one lump sum.

Why would someone give me a loan for five years and not want to
see any money sooner in the form of principal or interest payments?
I don ’ t always know why people do that, but I know it happens. Why
not start your LOI negotiations by asking for it?
If that goes nowhere, my second seller - financing request is for a

loan with simple interest at x percent to be paid in fi ve years . In other words,

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