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Owner Financing Question

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Chuck Brickman

Real Estate Investor from San Antonio, Texas

Feb 12 '13, 05:09 PM


I have sold a number of rehabs via conventional financing but am new to owner financing and would like some advice. I live in Texas and am selling a single family home with a 65k list price. There is no mortgage on the property. I just received an offer, thru a realtor, to purchase the house for 65k, owner financing. Buyer would like to pay 10% down, with a 5 year balloon. Buyers wants me to pay title policy. In a nutshell, I'd be paying $3900 in realtor fees, about 600 for a title policy and about 1k in closing.

The buyer has a decent income with no credit, his wife has a fair income with excellent credit. I'm thinking of asking for more than 10% (15%?) and a 3 year balloon instead if 5. Also I would request a 1 year prepayment penalty.

Could I get some comments on the proposal? Also, what provisions should I ensure are in the contract?

Thanks in advance.



Mike M.

Longview, Texas

Feb 12 '13, 06:12 PM


It's hard to say without knowing your plans post-sale. Do you need the cash now, or can you afford a 3-5 year wait? Can you make a better return on your equity then what you'll make on this deal? In the event they default, is the money they have in the deal enough to cover eviction and make-ready costs?

It sounds like owner financing was not one of your exit strategies. Has the house been on the market long enough for you to get concerned that this may be your only offer?

If you're confident in the buyers, could you carry a small second that may get them to conventional financing?

You also may check with an attorney on SAFE Act compliance and if you need a licensed broker to originate the note.

Mike



Chuck Brickman

Real Estate Investor from San Antonio, Texas

Feb 12 '13, 06:53 PM


Mike,

Great comments. I would be ok with a 3 year balloon. Your thoughts about having enough cash for eviction and make ready was one I hadn't thought of. I've also been told that should I sell owner financing and carry the note I would be able to borrow on the note for another property.



Champak Shah

Stone Mountain, Georgia

Feb 12 '13, 11:58 PM


A. First --if you are an Investor / Rehabber --why do owner Finance ? Use all money to buy --fix and sale two or three houses and make over 25 % return. B. Second -- Why use RE --if you want to do owner Finance --advertise as such OR put a big sign --Banner at the house --up the price $5000 more and ask for 20% down -- C. Third option is to do Lease / Option --take $5000 Non Refundable deposit --and rent for one or two years -- with option to buy -- let them get Conventional Financing or take 25 % down with owner financing -- The way you have --10% ( $6500) down and you pay $5000 back -- You have NO leverage -- Do not accept the offer.



Chuck Brickman

Real Estate Investor from San Antonio, Texas

Feb 15 '13, 05:52 AM


Great. Thank you.



Bill G.

Real Estate Investor from Springfield, Missouri

Feb 15 '13, 06:15 AM


Your options are limited in Texas as to Champak's suggestions to six months!

Since this is not your primary residence, you might search here about the "SAFE Act".

Also, you need to consider usury laws applicable.

Chuck, I'll guess you're unaware of the issues now, you can search here as much has been written about seller financing, you can't just go at it like sellers did 10 years ago.

See an attorney familiar with the restrictions and get with a mortgage broker/originator to assist. Good Luck! :)



Chuck Brickman

Real Estate Investor from San Antonio, Texas

Feb 15 '13, 08:21 AM


Bill,

Thanks for your note. I have researched the SAFE act and associated legislation. As you mentioned , this is not my primary residence, although my total sales under the auspices of owner financing will be under 5 this year.

Thanks



Bill G.

Real Estate Investor from Springfield, Missouri

Feb 15 '13, 08:33 AM


@Chuck Brickman Great, then all you're held to is prudent lending and preditory lending practices. I still suggest you and your borrower se an attorney. Good luck!



Kyle J. Donor

Real Estate Investor from Northern, California

Feb 15 '13, 08:43 AM


@Mike M. and @Chuck Brickman If you actually sell the property to a buyer on owner financing and you end up wanting to get them out for some reason (i.e. non payment), you'll likely have to do a foreclosure...not an eviction. Just something to be aware of.



Bill G.

Real Estate Investor from Springfield, Missouri

Feb 15 '13, 08:48 AM


Good point Kyle, and at which time they object and the foreclosure becomes a judicial process where the judge looks at the arrangement and decides in a court of equity, and while the SAFE Act is not required to be followed it becomes a base line for prudent expectations of a seller. :)



Mike M.

Longview, Texas

Feb 15 '13, 09:17 AM


Thanks @Kyle J. - I was trying to convey the cost of non-performance but got sideways on the terms.

@Chuck Brickman - what did you decide to do?



Chuck Brickman

Real Estate Investor from San Antonio, Texas

Feb 15 '13, 10:11 AM


Mike,

I'm still in the information gathering stages...weighing the pros and cons.



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