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2017-01-10 13:30:51
Should you Seller Finance?

 

If you own your home outright you have a unique opportunity to act like a bank. If you do Seller financing you would sign the house over to the new owner and then receive a NOTE (Which specifies how you will get paid) and a DEED OF TRUST (Which explains what happens if they fail to pay, by laying out the foreclosure process). You would then proceed to act just as a bank would. Even the payments can be made to an intermediary so you do not have to deal directly with the Buyers.
 
Advantages
  • You receive cash in the form of a down payment
  • You receive monthly payments (I recommend interest only for simplicity)
  • You have the same security any bank would
  • Appraisals are generally easier to get a higher value on a refinance than a purchase
  • You get your asking price instead of what the current market will bear
  • You do not have tenants! Since they own the property any repairs or improvements are their cost to bear. You receive no phone calls.
  • Property taxes are paid by the new owner.
  • No empty house to worry about.
Disadvantages
  • The Sale is not 'Done' so you do not really have total closure, or all of your money until it is refinanced by the new owner in a year or two.
  • If you must foreclose the process can take up to 4 months if they do not go peacefully. Costs start at around $1,500 and can go up if the Buyers are super crafty (legally).
The sales process is different than a normal contract because you as the Seller also have a due diligence period in which you can pull the Buyer's credit, do a background check and find out all about their financial lives before you are committed as a Seller. If you choose to reject them during this time you only lose the money it cost to have them checked out (maybe $200)
 
 
If the Buyer's intent is to remodel or upgrade the property and they never do the refinance and leave or you foreclose at the end of the term you may receive the property with some improvements.  All of their decisions are completely their own since they would be buying the home. They may change everything, they might do nothing. So it is also possible to get the property back in worse condition.
 
More Buyers
 

If you offer Seller Financing you will have a lot of Buyers who will want your property. You will basically reduce the number from an infinite number to a few by increasing the amount of money you require as a down payment. Since you are the bank you get to choose all of the terms and options.

The Money
This is the kind of situation where beggars can't be choosers. The chances of getting your asking price is much higher because of the incentive of creative financing. Many people cannot get a bank to loan them money because they have not had long enough in business, financial troubles that are getting better, or marital issues (A common one is people who pay exorbitant child support and are still a year or two away from the child becoming an adult)
 
An example scenario is this:
Purchase price:  $400,000
Down Payment:  $30,000
Loan amount: $370,000
Interest rate:  6.5%
Monthly Interest payment:  $2004.17
 
If it takes them a full 18 months you would receive a total of $36,075.00 in interest payments and then receive the balance of $37,000 at closing bringing your total gross receipts to $436,075.  Different parts of the proceeds would be taxed differently so always consult with a good accountant.
 
Please call me with questions.  I love to answer tough ones.
Mike 801-836-6683
 
 
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2017-01-10 13:30:51
Should you Seller Finance?


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