School Me on Selling Property Owner Finance

[BabushkaLady]

I've got a situation that came up to sell one of my properties.

Tell me what to watch out for with owner finance. What do you know?

[palani]

Hold the deed until half paid for then surrender the deed and revert to a mortgage. Land contract.

[Cebu_4_2]

As in land contract? You need to have a contract written by a knowledgeable realty attorney to protect yourself on many angles like liability etc. No handshake on this one.

[BabushkaLady]

Yes land contract. We'll get it all legally done, I just don't want any realtors or banks involved. I'm looking for the ways I can get screwed on this?

[Libertarian_Guard]

Easily done if you live in Texas. Two different ways.

Forgetaboutit if you live in N.Y.

[beefsteak]

Including a monthly penalty for late payment as incentive is motivational.

Having a 3rd party, such as a title company receiving the payments (paying me) and doing the late penalty payment assessing and recordations has been very beneficial in our private r.e. transactions.

Also, highly recommend checking the lawyer's math. In one of ours, we didn't and discovered the attorney who drew up the contracts has the contract concluding at a time certain in the future, but there is still money owing on the property after that date because the "suit" couldn't multiply correctly.


beefsteak

[osoab]

Take some advice from Uncle Slayton. ;D

http://www.youtube.com/watch?v=A_SakvKz3bM&feature=related

http://www.youtube.com/watch?v=A_SakvKz3bM&feature=related

[BabushkaLady]

Take some advice from Uncle Slayton. ;D

Good Friday afternoon music; was there a message in that song?

[osoab]

Good Friday afternoon music; was there a message in that song?

"Owner financed, then he takes em back."

The moon shine and meth is a completely different idea for a money maker.
I have no thoughts on that. ??? ;D :o

[Mouse]

Try to avoid having meth and booze addled sex with your two cousins unless you are properly armed. Then you can be "having a time"

[hoarder]

Do you know what green toilet paper will be worth in 5 or 10 years? I don't. If I ever carry a note again I'll do what I did a couple times in the past. Give them a balloon note. Interest rate and amortization can be whatever you negotiate, but they have to pay it off in full in 2 or 3 years. If they don't you take it back.

[BabushkaLady]

Do you know what green toilet paper will be worth in 5 or 10 years? I don't. If I ever carry a note again I'll do what I did a couple times in the past. Give them a balloon note. Interest rate and amortization can be whatever you negotiate, but they have to pay it off in full in 2 or 3 years. If they don't you take it back.

My thinking behind carrying the note is two fold. 1) I either wanted a cash sale because it's selling 54k over appraisal 2) If I can't get all of the money right now, I'd rather have the property tied up for a long time. (always a chance I'll get it back)

I guess I'd rather be sitting in RE then cash, but the monthly payment would be nice to throw into the metals pile too. If I could logistically rent it out I would maybe do that.

hoarder, what's your thinking about 2-3 years. What do you see as the upside?

[Mouse]

Not sure about Hoarder's goal, but a balloon note must be settled. So if you write a note for two years you collect your P & I for two years and the note must be paid in full. That does not preclude you and the counterparty from creating a new note of any specifics that settles the old note. So if the hyperinflation hits the fan, you either get paid your toilet paper or you take back the property in only 2 years. If things are calm, you may negotiate another note with the purchaser, and at different terms. The only people that can sign long notes in this day and age are banks, because they have the capital to go out and hedge their risk with derivatives.

Get your cash. Find some third party to take the loan, or - if you are looking at a default, take the money and then take your shit back. If you are looking at a default you should not be doing business for moral reasons, but many do play that game.

[PatColo]

My concern with seller financing would be the likelihood of the property declining in value, and the borrower/resident deciding it's in their best interest to walk away as they are under water.

My guess is property in general continues to decline in value, or at best levels off in nominal $ value, as inflation in other assets takes off, killing the buying power of your capital parked in the property. A crash for you either way.

Thread: CBS 60 Minutes: Mortgages: Walking Away (http://gold-silver.us/forum/showthread.php?27547-CBS-60-Minutes-Mortgages-Walking-Away/page3)

[hoarder]

My thinking behind carrying the note is two fold. 1) I either wanted a cash sale because it's selling 54k over appraisal 2) If I can't get all of the money right now, I'd rather have the property tied up for a long time. (always a chance I'll get it back)

I guess I'd rather be sitting in RE then cash, but the monthly payment would be nice to throw into the metals pile too. If I could logistically rent it out I would maybe do that.

hoarder, what's your thinking about 2-3 years. What do you see as the upside?Usually these kinds of deals include a large 25-33% down payment. You have to have some idea what the value of the property will be in a couple years. Something relatively safe like a homestead in a good area is not likely to fall as far as a luxury home in a so-so area. You might go 3 years on the former and 1 year on the latter.

I wouldn't owner finance anything more than 3 years or less than 25% down because FRN's are in a cloud of uncertainty. Bankers loan money out of thin air, you will be loaning your own money.

I've also used balloon notes as a buying tool. When buying raw land that banks don't like to finance, especially to a land flipper that has no verifiable income, you need owner financing. Most owners don't want to mess with that since they have never done it before. Even if a seller does not offer financing, I have submitted these offers to realtors and had them accepted. The realtor submits a balloon note offer to the seller like this; "The buyer may not be able to make the balloon note and would have to forfeit his 25% down payment" appealing to the sellers greed and knowing he (the realtor) may get two commissions before it's all said and done. They usually swallow the hook, even at a much reduced price. I've bought several tracts this way with no problems.

[palani]

FRN's are in a cloud of uncertainty.

There is no uncertainty with a FRN. They are worthless.

[BabushkaLady]

Thanks for working through this with me.

I guess I'm really trying to rate the risk factor in this deal. I've sold businesses owner finance. They usually entailed getting 2/3 down, carrying the rest over 3-5 years with a balloon payment at the end. I saw that as possibly never seeing a penny beyond the first few payments if they trashed the business. So far those always worked out. This is new territory for me. I guess as far as risk, I'm seeing this as less risky then selling a business. That's why I was thinking of making this a more affordable deal for the buyers. They have income, assets and other properties. They also love the place enough to pay full asking price.

I don't do things out of the greed or making a bundle. I generally put a lot of TLC and enthusiasm into projects. I also don't worry about making money; I watch all the places I could lose it. Sometimes I'll say money ain't worth nothing and people think I'm crazy!

As far as FRN's being uncertain. That is a concern, but won't the property being valued in the future in those same FRNs also be uncertain?

[hoarder]

As far as FRN's being uncertain. That is a concern, but won't the property being valued in the future in those same FRNs also be uncertain?Inflation is how owners of financed property make their money. You buy a 100K house nothing down, make payments comparable to rent for a few years. Then suddenly it's worth 150K thanks to the banksters issueing money. You sell it and walk away with 50K cash you didn't have before.

Apply this to your situation. If there is massive inflation, there is no way you will get the property back. They will make the payments which will be pennies on the dollar. That's what you will end up with...pennies.