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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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seller financing
I'm a few years away from retirement but stumbled upon a great house that my wife and I would like to buy now. The problem is that most of our money
is tied up in our current house, and we only have enough cash on hand for about half of the asking price. Our options are either taking out a home
equity line of credit on our current house or trying to persuade the seller to finance the balance of the purchase price. I know nothing about how the
latter would work - whether it's common practice or is considered risky or controversial. Does any one have any experience with seller financing for
real estate? I may be a Nomad yet...
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ranpar01
Junior Nomad
Posts: 42
Registered: 2-16-2017
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I'm in a similar boat. Can't help with your original question about seller financing, but I did recently find out that I can borrow against my 401K
which might be an option for you as well depending on your situation. Just tossing it out in case you hadn't considered it. Best of luck!
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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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Thanks for the quick reply. I asked my financial adviser about borrowing against my 401K, and he explained that I would have to collateralize it, and
that doing so would prompt the IRS to see it as taxable income - even if I didn't withdraw a penny of it. The resulting tax bill would make going this
route prohibitive, so I'm back to a choice between a HELOC and seller financing.
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stiladam
Nomad
Posts: 119
Registered: 5-13-2010
Location: Where the debris meet the seas in HB
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Mood: Acoustic
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Not sure about owner financing in Mexico but I've heard of it being done so I'm sure someone will chime in.
Consider a home equity loan rather than a HELOC
The difference between a home equity line and a home equity loan, the line has a floating interest rate and the loan has a fixed interest rate.
Generally HELOCs are best used for home improvements or for people wishing to use their homes as an ATM. (Remember those days - yikes!)
http://www.clark.com/the-only-time-to-take-out-a-heloc-loan
There's plenty more out there about this if you research one versus the other.
Good luck on the dream!!
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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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Thanks for the reply. We've owned our home for over 20 years, but have never taken out either a home equity loan or line of credit, so this is new
territory for us. The original plan was to wait until I retired - and we sold the house in Massachusetts - to buy in Baja, but this opportunity seems
to good to pass up.
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MMc
Super Nomad
Posts: 1679
Registered: 6-29-2011
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Mood: Current
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Remember the first rule of Buying Property is Mexico. Never buy more then you are willing to walk away from.
Third rule Rent before you buy.
Having said that I have owned 2 properties in Mexico and loved them both.
"Never teach a pig to sing it frustrates you and annoys the pig" - W.C.Fields
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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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We've rented several properties in Todos Santos and El Pescadero, but your admonition is well-taken. That's why we're trying to do our homework about
the pros and cons of different financing options.
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BigBearRider
Super Nomad
Posts: 1299
Registered: 4-30-2015
Location: Big Bear, Punta Chivato, and Cabo
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Quote: Originally posted by pauldavidmena  | | Thanks for the quick reply. I asked my financial adviser about borrowing against my 401K, and he explained that I would have to collateralize it, and
that doing so would prompt the IRS to see it as taxable income - even if I didn't withdraw a penny of it. The resulting tax bill would make going this
route prohibitive, so I'm back to a choice between a HELOC and seller financing. |
I don't think this is correct advice. I suspect that you will not be able to borrow against your 401(k) outside of the 401(k), but many 401(k) plans
allow you to borrow against your balance up to a certain amount. You pay the interest to yourself. A drawback is that if you leave your job, you
have to repay the entire debt quickly.
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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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I should clarify: I have a 401K against which I can borrow, and an IRA that I would have to collateralize in order to borrow against it. I'd prefer a
home equity loan or line of credit over either option.
I guess my question still stands regarding seller financing. I've received one reply via private message (thank you!) but would love to hear more from
either buyers or sellers.
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mtgoat666
Select Nomad
Posts: 17289
Registered: 9-16-2006
Location: San Diego
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Mood: Hot n spicy
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| Quote: Originally posted by pauldavidmena | | I'm a few years away from retirement but stumbled upon a great house that my wife and I would like to buy now. The problem is that most of our money
is tied up in our current house, and we only have enough cash on hand for about half of the asking price. Our options are either taking out a home
equity line of credit on our current house or trying to persuade the seller to finance the balance of the purchase price. I know nothing about how the
latter would work - whether it's common practice or is considered risky or controversial. Does any one have any experience with seller financing for
real estate? I may be a Nomad yet... |
Yes, seller financing is done in Mexico. But first question to ask, does the seller want to do it? Doesn't matter what the nomad peanut gallery
thinks if seller is not interested in that type of deal?
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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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| Quote: Originally posted by mtgoat666 | | Quote: Originally posted by pauldavidmena | | I'm a few years away from retirement but stumbled upon a great house that my wife and I would like to buy now. The problem is that most of our money
is tied up in our current house, and we only have enough cash on hand for about half of the asking price. Our options are either taking out a home
equity line of credit on our current house or trying to persuade the seller to finance the balance of the purchase price. I know nothing about how the
latter would work - whether it's common practice or is considered risky or controversial. Does anyone have any experience with seller financing for
real estate? I may be a Nomad yet... |
Yes, seller financing is done in Mexico. But first question to ask, does the seller want to do it? Doesn't matter what the nomad peanut gallery
thinks if seller is not interested in that type of deal? |
My understanding from the realtor is that seller financing wouldn't be his first choice, but with the house on the market for a year or so he is
willing to go that route. Sensing his reluctance (and having some of our own), we're looking into a home equity loan at the same time.
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bajaguy
Elite Nomad
Posts: 9247
Registered: 9-16-2003
Location: Carson City, NV/Ensenada - Baja Country Club
Member Is Offline
Mood: must be 5 O'clock somewhere in Baja
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Make sure the "seller" actually owns the property
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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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I've heard of some nightmares about this sort of thing. We'll walk away if anything smells fishy.
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bajaguy
Elite Nomad
Posts: 9247
Registered: 9-16-2003
Location: Carson City, NV/Ensenada - Baja Country Club
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Mood: must be 5 O'clock somewhere in Baja
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Demand written proof, then double check
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BigBearRider
Super Nomad
Posts: 1299
Registered: 4-30-2015
Location: Big Bear, Punta Chivato, and Cabo
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Mood:
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| Quote: Originally posted by pauldavidmena | I should clarify: I have a 401K against which I can borrow, and an IRA that I would have to collateralize in order to borrow against it. I'd prefer a
home equity loan or line of credit over either option.
I guess my question still stands regarding seller financing. I've received one reply via private message (thank you!) but would love to hear more from
either buyers or sellers. |
Ok. You can likely borrow up to $50k (or half of your balance) through your 401(k).
I don't think you can borrow against your IRA. Did your financial advisor tell you that you could?
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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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| Quote: Originally posted by BigBearRider | | Quote: Originally posted by pauldavidmena | I should clarify: I have a 401K against which I can borrow, and an IRA that I would have to collateralize in order to borrow against it. I'd prefer a
home equity loan or line of credit over either option.
I guess my question still stands regarding seller financing. I've received one reply via private message (thank you!) but would love to hear more from
either buyers or sellers. |
Ok. You can likely borrow up to $50k (or half of your balance) through your 401(k).
I don't think you can borrow against your IRA. Did your financial advisor tell you that you could? |
My financial adviser said that I couldn't borrow against my IRA, which is where the majority of my retirement savings is. Due to my company recently
being acquired by another one, my existing 401K was rolled over to an IRA and my new 401K doesn't have enough of a balance to borrow against. So we're
back to the choice between a home equity loan or seller financing.
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BigBearRider
Super Nomad
Posts: 1299
Registered: 4-30-2015
Location: Big Bear, Punta Chivato, and Cabo
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Mood:
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Ok. Now it makes sense. No collateralizing of the IRA. One option which may be of interest is to take an early withdrawal from the IRA. It's subject
to penalties and taxes, depending in your situation.
I suspect a home equity loan or owner financing is a better option.
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Martyman
Super Nomad
Posts: 1904
Registered: 9-10-2004
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At age 59 1/2 you can take money out of the IRA with no penalty, but of course you pay taxes.
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pauldavidmena
Super Nomad
Posts: 1686
Registered: 5-23-2013
Location: Centerville, MA, USA
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I'm 2 years from that particular milestone, so it's not an option for the immediate future. I'd also prefer to save the money for when I'm there,
rather than using some of it to get there. In any case, we'll have to see what happens with the home equity loan or owner financing.
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DENNIS
Platinum Nomad
Posts: 29510
Registered: 9-2-2006
Location: Punta Banda
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Make sure you use a notario for contracts of any kind. All parties must be legal in Mexico if you expect protection in Mexico.
"YOU CAN'T LITTER ALUMINUM"
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