Is this a dumb idea?

Question

I have decided to sell my next few flips to home buyers with sellers financing. Is this a dumb idea? What do you think could go wrong?

Cole Bossert · Answer

Not dumb, but risky. Biggest issues: buyers defaulting, tying up your capital longer, and legal headaches with foreclosure. Screen buyers hard, get a solid note and deed of trust, and use a real estate attorney.

Ken M. · Answer

It works if you own the properties "Free & Clear"What we actually do is sell on Lease Option in states where that is allowed and typical deed of trust (mortgage) where we have to. Well written documents by an attorney, and professional procedures cover you, as well as can be expected. We typically get 10% down, sometimes a bit more. We try to make the payment competitive with local rents but at least enough to cash flow. We don't use property managers since on a purchase, the buyer has responsibility for maintenance and repairs.Just make certain there is adequate insurance, Treat it the same way the big banks do.The Dodd- Frank ACT requires certain disclosures and underwriting, but it's pretty simple to be compliant.

Selling a property you have a loan against (called a lien, mortgage, HELOC, Subject To, Wrap) is quite risky even though some attorneys will tell you that it's fine. It is not and they aren't the ones putting their credit and potential lawsuit on the line. You are. They are timebombs waiting to go off. Any hiccup from the buyer and you have a serious problem on your hands trying to resolve things. Yes, you can foreclose, however once the Due on Sale gets called, you have limited time to resolve the issue. And you've destroyed the credit of anyone who's name is on the loan among other problems.

Just keep it to debt free properties where you have total control and you'll be fine.

Peter Mckernan · Answer

No, this is not, unless you need the money back quickly.. It is a good option to keep your money flowing in, and then get some capital out (down payment they pay you) to pay some other stuff.

Chris Seveney · Answer

That depends. There is a lot of information missing from this post. Such as -do you have financing on the property, what is the financing terms. When you seller finance are you going to go the guru route and do not underwrite the borrower and just jack up the price or you actually going to qualify them as a legit borrower.

If you are doing this in CT, I would say do not do it, as if they default the foreclosure process and timeline in CT is not short and you could go years without any payments alll the while still paying the insurance and high property taxes.

Kevin Jo · Answer

In this market????? Why would you seller finance? You can sell a cardboard box in this market.

Is this a dumb idea?

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