Buying a house financing

[josh2203]

Yes but you're only getting interest on the downpayment, and you are foregoing interest on the amount that is owed to you.

If your buyer is creditworthy he can go to a bank and get a loan. If the reason he wants seller finance is because he can't get a bank loan, that should worry you. If he is trying to get seller finance as a way of paying no interest on the loan, then you should understand that you are losing that interest. You could be earning 10% interest on that money, the same 10% that he would be paying for a mortgage.

That is true, but in terms of leverage for the seller:
If a bank finances a house, the interest is all the benefit they get from the loan. If the seller finances the house, even if they didn't get any or a lot of interest on their money, they still get their property sold. If it's the buyers market, then this arrangement might be beneficial for the seller as well. We in fact tried this once and due to the very unfortunate fact that there was at the time a decent demand for properties in that particular segment, our nice proposal was declined as a buyer with cash in hand arrived and took the property, so it was the seller's market more or less at that time.

 

[MariaRubia]

But when you have been trying to sell for years with no takers you might think differently.

Sure, but understand that as a seller you are losing 10% interest per year on the amount that you're financing, so over 5 years that amounts to 60% of the amount that you're financing. So at the end of the day, you could be selling for half price. To be honest it makes more sense to reduce the price by 50% and sell for cash.

 

[JD Jones]

I came close to buying a house here in S.C., and the owner said he would finance it but with interest.

 

[guayaba79]

I can have easily gotten a bank mortgage but why would I pay high interest and use my own money when an owner is willing to finance at zero percent? So, it's not that all buyers can't get a loan or not qualified. Also, you're assuming that the buyer is a legal resident and can apply for a loan. 99% of all expats buyers are paying cash and not financing in the DR. The last thing I enjoy doing is dealing banks.

I want to finance it over many years.. not 4 or 5.. I dont think owners would do 25 years.. I have a monthly budget.

 

[josh2203]

Sure, but understand that as a seller you are losing 10% interest per year on the amount that you're financing, so over 5 years that amounts to 60% of the amount that you're financing. So at the end of the day, you could be selling for half price. To be honest it makes more sense to reduce the price by 50% and sell for cash.

I hope my math went well but I only arrived to about 27 % loss in total over 5 years if you go interest free, not 50 or 60 % ? So based on this, you would definitely not lose half?

 

[Notengo]

I want to finance it over many years.. not 4 or 5.. I dont think owners would do 25 years.. I have a monthly budget.

The higher interest rates in the DR are the killer with a long term mortgage. A 10 year longer term may not lower your monthly payments as much as you would like. Best is to get some quotes so you can compare.
There must be a reason Dominicans try to pay off mortgages as soon as possible.

 

[MariaRubia]

I hope my math went well but I only arrived to about 27 % loss in total over 5 years if you go interest free, not 50 or 60 % ? So based on this, you would definitely not lose half?

At most banks in DR at the moment you can get 10% on a Certificate, so let's assume the interest rate is 10% per year. That's what you could be gaining on your money.

So on $100,000 in the first year you would have / lost 10%, so US$ 10,000
In the second year you now have US$ 110,000, so you would have US$ 11,000 of interest
In the third year you now have US$ 121,000 so you would have US$ 12,100 of interest
In the fourth year you have US$ 133,000 so you would have US$ 13,300 of interest
In the fifth year, you would have US$ 146,300 so you would have US$ 14,630 of interest
So at the end of five years, you would have US$ 160,930

In effect, over 5 years, the interest on every US$ 100,000 is $60,930, or about 60%.

So if you had a place that was worth, say, US$ 400,000 and you let the buyer pay you US$ 100,000 deposit and US$ 300,000 interest-free over five years, five years later you would have US$ 460,930. Whereas if someone paid you cash on the first day and you invested that over five years, you would have US$ 643,720. So basically by giving your buyer interest-free, you are US$ 182,790 down compared to a cash deal.

Put another way, if you sold for US$ 286,000 and invested the money over five years at 10%, you would end up with US$ 460,000, the same total you would get if you gave someone US$ 100,000 down and 5 years interest-free. So if you had a place worth US$ 400,000 by offering the interest-free deal, you would basically be parting with it for US$ 114,000 less than it's worth (getting on for a 1/3 reduction in price).

And that's not even factoring in the hassle of the buyer maybe not paying you. Much simpler to slash the price to say US$ 320,000 if you want to sell quickly and find a cash buyer.

 

[josh2203]

At most banks in DR at the moment you can get 10% on a Certificate, so let's assume the interest rate is 10% per year. That's what you could be gaining on your money.

So on $100,000 in the first year you would have / lost 10%, so US$ 10,000
In the second year you now have US$ 110,000, so you would have US$ 11,000 of interest
In the third year you now have US$ 121,000 so you would have US$ 12,100 of interest
In the fourth year you have US$ 133,000 so you would have US$ 13,300 of interest
In the fifth year, you would have US$ 146,300 so you would have US$ 14,630 of interest
So at the end of five years, you would have US$ 160,930

In effect, over 5 years, the interest on every US$ 100,000 is $60,930, or about 60%.

So if you had a place that was worth, say, US$ 400,000 and you let the buyer pay you US$ 100,000 deposit and US$ 300,000 interest-free over five years, five years later you would have US$ 460,930. Whereas if someone paid you cash on the first day and you invested that over five years, you would have US$ 643,720. So basically by giving your buyer interest-free, you are US$ 182,790 down compared to a cash deal.

Put another way, if you sold for US$ 286,000 and invested the money over five years at 10%, you would end up with US$ 460,000, the same total you would get if you gave someone US$ 100,000 down and 5 years interest-free. So if you had a place worth US$ 400,000 by offering the interest-free deal, you would basically be parting with it for US$ 114,000 less than it's worth (getting on for a 1/3 reduction in price).

And that's not even factoring in the hassle of the buyer maybe not paying you. Much simpler to slash the price to say US$ 320,000 if you want to sell quickly and find a cash buyer.

I checked and you are right on the certificate rates that you might currently get in banks in the DR. I also agree that your math looks correct. However, this thread is about financing a house or mortgage whereas you are referring to a complete another way of investing and the interest coming from there. Some may go with CDs, some with real estate, but even in real estate the example of a seller financing is not that common I think, so the whole example of a seller financing is rather seldom I'd say? A person that has a property of a certain value for sale, may or may not have the same amount of cash available for a CD investment, so in many cases, as far as I can think of, are not really choosing this (property financing) or that (CD)...

My wife's stepmother has multiple CDs in Reservas and indeed they produce nicely, but again, as far as I can see, that being another form of investment, has little to do with this thread. My calculation came from mortgage payments, not investing.

Perhaps also to add to your example of the 182k USD loss is that properties might lose/gain value during those 5 years of time, so that might affect your total investment and thus affect the calculation...

 

[DrNoob]

At most banks in DR at the moment you can get 10% on a Certificate, so let's assume the interest rate is 10% per year. That's what you could be gaining on your money.

So on $100,000 in the first year you would have / lost 10%, so US$ 10,000
In the second year you now have US$ 110,000, so you would have US$ 11,000 of interest
In the third year you now have US$ 121,000 so you would have US$ 12,100 of interest
In the fourth year you have US$ 133,000 so you would have US$ 13,300 of interest
In the fifth year, you would have US$ 146,300 so you would have US$ 14,630 of interest
So at the end of five years, you would have US$ 160,930

In effect, over 5 years, the interest on every US$ 100,000 is $60,930, or about 60%.

So if you had a place that was worth, say, US$ 400,000 and you let the buyer pay you US$ 100,000 deposit and US$ 300,000 interest-free over five years, five years later you would have US$ 460,930. Whereas if someone paid you cash on the first day and you invested that over five years, you would have US$ 643,720. So basically by giving your buyer interest-free, you are US$ 182,790 down compared to a cash deal.

Put another way, if you sold for US$ 286,000 and invested the money over five years at 10%, you would end up with US$ 460,000, the same total you would get if you gave someone US$ 100,000 down and 5 years interest-free. So if you had a place worth US$ 400,000 by offering the interest-free deal, you would basically be parting with it for US$ 114,000 less than it's worth (getting on for a 1/3 reduction in price).

And that's not even factoring in the hassle of the buyer maybe not paying you. Much simpler to slash the price to say US$ 320,000 if you want to sell quickly and find a cash buyer.

Thank you for saving me from having to do this

 

[MariaRubia]

I checked and you are right on the certificate rates that you might currently get in banks in the DR. I also agree that your math looks correct. However, this thread is about financing a house or mortgage whereas you are referring to a complete another way of investing and the interest coming from there. Some may go with CDs, some with real estate, but even in real estate the example of a seller financing is not that common I think, so the whole example of a seller financing is rather seldom I'd say? A person that has a property of a certain value for sale, may or may not have the same amount of cash available for a CD investment, so in many cases, as far as I can think of, are not really choosing this (property financing) or that (CD)...

My wife's stepmother has multiple CDs in Reservas and indeed they produce nicely, but again, as far as I can see, that being another form of investment, has little to do with this thread. My calculation came from mortgage payments, not investing.

Perhaps also to add to your example of the 182k USD loss is that properties might lose/gain value during those 5 years of time, so that might affect your total investment and thus affect the calculation...

No you're wrong it has everything to do with this thread. If you sell your house worth US$ 400,000 today, we are looking at two options. One is where you get US$ 400,000 today, and the other is where you get US$ 100,000 today and you allow the buyer to pay you over 5 years. What I was showing is that if you take the first option, you have US$ 400,000 that you can invest over 5 years, and how much you end up with, compared to the second option where you only have US$ 100,000 to invest. I'm just showing how much you are losing, but I am comparing the options for selling your house, which is the subject of this thread.

 

[MariaRubia]

Thank you for saving me from having to do this

I went to a very smart university and read Economics, and it got very very complicated on the maths side of things. And this dumb blonde really struggled until I came across a tutor who explained Lagrange Multipliers and Karush–Kuhn–Tucker conditions using apples, oranges and bananas. I must admit all I can remember today is how complicated they were and I'm pleased I have more important things like buying shoes to think about.

 

[guayaba79]

No you're wrong it has everything to do with this thread. If you sell your house worth US$ 400,000 today, we are looking at two options. One is where you get US$ 400,000 today, and the other is where you get US$ 100,000 today and you allow the buyer to pay you over 5 years. What I was showing is that if you take the first option, you have US$ 400,000 that you can invest over 5 years, and how much you end up with, compared to the second option where you only have US$ 100,000 to invest. I'm just showing how much you are losing, but I am comparing the options for selling your house, which is the subject of this thread.

There isn't many people that can pay 300k over 5 years. Not for most working people and certainly not for someone eith a current mortgage in the u.s.

 

[Liberator]

There isn't many people that can pay 300k over 5 years. Not for most working people and certainly not for someone eith a current mortgage in the u.s.

An off-topic comment: For this reason, real estate rental is an excellent investment. Rental prices in this segment are also not reserved for the middle class, but for the higher segment, expats and CEOs of (international) companies

 

[guayaba79]

An off-topic comment: For this reason, real estate rental is an excellent investment. Rental prices in this segment are also not reserved for the middle class, but for the higher segment, expats and CEOs of (international) companies

I can buy many apartments there outright.. the issue is I'm not sure how that is there.. if the management company running the place isn't responsive or other issues.. I have about 150k cash to use right now.. sure I could buy more nvidia stock and wait a few years.. or explore financing a house for the 100k difference i need to buy a few places I like

 

[Liberator]

I can buy many apartments there outright.. the issue is I'm not sure how that is there.. if the management company running the place isn't responsive or other issues.. I have about 150k cash to use right now.. sure I could buy more nvidia stock and wait a few years.. or explore financing a house for the 100k difference i need to buy a few places I like

Make sure you hire a trusted and reputable real estate agent who will protect you from possible pitfalls during the purchase process, any additional (tax) costs and also ensure that the title is in your name. If necessary, also have the documents translated.

I hope you can buy something nice. Above all, enjoy it!

 

[MariaRubia]

In any case, everyone who has lived in DR for a while would tell you that you need to rent somewhere first before you buy, even if you have the money. There is no way I would ever live anywhere without renting first. You need to know how noisy the neighbours are. You need to know if there is a lot of AirBnB activity in your block (as this can be a nightmare, to the point that you can't use the pool at the weekend for the crowds / music / dope smoking). You need to know how well the block is managed. You need to know how the traffic works 24/7 not just at the time you've viewed. You need to get used to the space and see if it really works for you.

It's also very very different coming here on vacation and living here. You probably don't need to do much with a bank on vacation, you probably don't need medical attention, you probably don't need to buy screws or nails or clothes or pool cleaning products. All of these things become a thing when you live here.

You can usually negotiate a rent-to-buy agreement, but honestly do not consider living in DR without renting first.

 

[MariaRubia]

There isn't many people that can pay 300k over 5 years. Not for most working people and certainly not for someone eith a current mortgage in the u.s.

Ok so without going into more math, take it from me that the longer you give your buyer to pay you, the worse the numbers get compared to a cash sale.

 

[Notengo]

There isn't many people that can pay 300k over 5 years. Not for most working people and certainly not for someone eith a current mortgage in the u.s.

If you have a mortgage of 20 years or more in the DR the total costs may have doubled or tripled by the time you’re done. Most mortgage rates are around 14-15% nowadays in the DR.
We are working on getting a 10 year 100k mortgage right now and the monthly costs are substantial. The revenues of 2 rented apartments and a small business will all go into paying it off as soon as possible, the goal is to get several years off the 10 year duration. The longer it takes the more you loose at the end.

 

[josh2203]

No you're wrong it has everything to do with this thread. If you sell your house worth US$ 400,000 today, we are looking at two options. One is where you get US$ 400,000 today, and the other is where you get US$ 100,000 today and you allow the buyer to pay you over 5 years. What I was showing is that if you take the first option, you have US$ 400,000 that you can invest over 5 years, and how much you end up with, compared to the second option where you only have US$ 100,000 to invest. I'm just showing how much you are losing, but I am comparing the options for selling your house, which is the subject of this thread.

I'm completely fine being wrong, no problem at all... Yes, I agree with the above, but my point was that my example again was only within buying/selling a house and the payments related to that. Obviously, if you get the cash quicker, you can do anything you like with it, like invest in something else. Similarly (I do not have any exact numbers), you could just keep the house and rent it, and likewise get interest (=rent) on your (whole) capital (=property).

 

[JD Jones]

I'm completely fine being wrong, no problem at all... Yes, I agree with the above, but my point was that my example again was only within buying/selling a house and the payments related to that. Obviously, if you get the cash quicker, you can do anything you like with it, like invest in something else. Similarly (I do not have any exact numbers), you could just keep the house and rent it, and likewise get interest (=rent) on your (whole) capital (=property).

We haven't even gotten into the folks who rent an apartment or house and then don't pay the monthly rent.