Many home owners dread being involved in a
situation where a property they've listed for sale has been sitting unsold for
too long. The basic reason is usually the same - the asking price is too high
for the market conditions.
In these situations, the seller is forced to lower
their price in hopes of making the property more attractive to buyers.
Unfortunately, this technique doesn't always work to sell the real estate,
especially if the seller is unwilling to "discount" their house by
much, or if the market is weak.
A great solution for the seller is to open up to an
entirely different segment of buyers by offering seller financing. This way,
the property owner can often sell their house for their desired asking price
(or even more), and find a buyer more quickly than with conventional real
estate methods.
Some homeowners are hesitant to offer seller
financing services because of a lack of understanding about how private
financing works.
Like other things that seem complicated on the
surface, it's simply a matter of grasping the fundamental issues specific to
seller finance. By following the proper procedures to locate a prospective
buyer, create a note, and resell the note to a note purchaser (if necessary), a
real estate seller that is willing to "think outside of the box" can
sell their home for more money and close the deal faster as well.
Finding a prime buyer for seller financing
The majority of home buyers looking for seller
financing look through the "For Sale By Owner" ad listings in the
local paper. Even in today's Internet-dominated world, newspaper advertising
continues to be an effective means to reach those looking for seller financed
deals. A simple sale ad including the line "seller financing
available" or "credit issues OK" should help to generate
interest from the right potential candidates.
Doing the deal
Once a serious buyer is "on board" to
buy, the seller works with that party to set the terms of the note. It is
especially important to draw up the contract to favor the note holder when the
property owner will need to immediately resell the note in order to receive a
large lump sum of cash for their future payments.
Larger down payments are better than smaller
amounts, and shorter terms (5-10 years) and higher interest rates (12%-20%) are
usually preferred by buyers. It is the property seller's option to determine
what is acceptable and what terms to which the buyer will agree.
Once the details of the initial payment, payment
term, interest rate, and any necessary clauses are established, the buyer and
seller can create a new seller-financed note. Creating the note can be handled
with standardized boilerplate or the assistance of an attorney, although some
note sellers manage the private sale of their home without any paid legal
counsel at all.
Once the newly-created note has been reassigned to
a buyer, the property seller will have "cashed in" their future
monthly payments for an immediate lump sum payment from the note buyer - an
amount similar to what they would have received from a conventional sale.
Locating the right note buyer
The best method to find note buyers is using the
Internet. Using a popular search engine website with keywords such as "buy
monthly payments" or "buy mortgage payments" could lead to many
interested buyers.
Enlisting the assistance of a note finder
In the secondary finance industry, a unique group
of individuals exists who specialize in locating buyers. These cash flow
specialists - often known simply as "finders" - have a unique
understanding of what most buyers are looking for. These finders are happy to
work with property sellers (or their real estate agents).
While note finders can't offer any legal advice or
assist with the creation of a note, they are qualified to give general
recommendations about note buyers' buying criteria. Most importantly, note
finders will be able to help locate a buyer for a newly-created cash flow.
Creating an attractive note for resale
Note payers and note buyers are usually looking for
very different things. Most payers would love a "no money down"
purchase over 30 years at a low interest rate, but buyers wouldn't want
anything to do with this sort of note because it is a bad deal for them.
An initial down payment of at least 10% of the sale
price, a fully amortized term between 60 and 120 months, and an interest rate
of 12 to 20% is typically what a note buyer is seeking. These conditions are
necessary in order to minimize the discount to the note seller. Note buyers
will always reduce the payout amount somewhat in order to counterbalance the
risks - limited equity, a payer with low or no credit score, possible
foreclosure, or having to foot the bill for legal actions and selling the
property via auction.
When property sellers are willing to offer an
unconventional, private financed note to sell their house, the end result is
often much better than the alternative of lowering the price until a
"traditional buyer" finds the deal attractive. Smart sellers who can
apply owner-finance techniques will have a huge advantage in closing difficult
deals in tough markets.
