When you offer seller financing, it doesn't mean you will carry that note forever. An experienced Note Buyer can give you direction on creating the note before you create it in order for your Real Estate Attorney can use that information to make that note even worth more.
Misconceptions from the Seller
Many folks avoid owner financing because they don't think it's a viable solution for selling their home. If they can't walk away with enough money to provide the down payment on another property, they'll be powerless to replace the property they're selling. But in reality, many notes created through owner financing are quickly sold for top dollar. Actually, if the note is created with the buyers' purchasing criteria in mind, the seller could walk away from the closing table with cash in hand! This means that the net result is almost exactly the same as with a normal real estate sale. In the cases where Note Holders do encounter difficulty in selling their monthly payments, it's typically because the note was not created with the end in mind: to sell the note. This is why you should involve a professional Note Finder even before the note is created.
Plan ahead to make a note "a great deal": Create your note with the Note Buyer's needs in mind
If the seller of a private note needs a large amount of cash immediately, she will want to sell the note as soon as it has been created. And to quickly find a buyer, the note must meet the general buying parameters:
* A substantial down payment
* Minimize your risk with a good credit score
* 8% or better on Interest Rate
* A term that comes due in ten to fifteen years
If no down payment collected and the interest rate is low, the note would be great for the new property owner, but not for the Note Buyer. In a "Zero money down" real estate transaction, lenders worry that the buyer could walk away. So to compensate for little money down, lenders generally set higher interest rates so they get more money per payment. Unfortunately, Note Buyers do not have the ability to change the terms on the note. So when there is little or no equity in the property, all offers to purchase the secured note will be discounted substantially in order to compensate for the buyer's chances of default. The downside is that a heavily discounted buyout offer often means the seller can't get the money she needs from her note.
Notes that can be sold
Usually in the current market, the home buyer's down payment should be a minimum of 10% of the sale price. This payment immediately creates equity in the property to serve as the buyer's safety net in the event of a default. A competitive interest rate is important because it will make it easy for the buyer to purchase the note and yield the desired profit without big discount to the Note Holder. Finally, keep in mind that people typically prefer notes that follow a traditional term (amortized over 120 months, 180 months, etc). A two-year, interest-only balloon term is a perfect example of a note that many buyers would avoid. But remember, all notes are good notes at the right price. Of course, there are no guarantees of a expeditious sale. But it's easier to obtain an attractive offer for the Note Holder when the note is written with the buyers' needs in mind. Please contact me directly with specific note information so that I may suggest a private finance solution that will be optimal for your needs.
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