Hi - Since I am getting started in investing, I understand the overall concept of seller financing, but not necessarily the structure. Can someone explain seller financing and maybe use the example of purchasing a $100K property (with a $50K note) from a seller offering a seller financing structure? How would I be protected? Would the seller still hold the note and be responsible for payments? Any advice would be great?
sure - are you the buyer, or the seller? let's make you the buyer. in your example, it sounds like you're putting $50K down, and financing $50K. OK, you'd close on the property, put $50K down at closing, and then you'd make payments to the seller for the remaining 50K. they could either be even, fully amortized payments until the loan is paid off, OR payments for a specific number of months, followed by a balloon. or you could put $1K down and finance $99K. the arrangement is whatever the buyer and seller agree to.
what protects both the buyer and the seller are the contracts you sign at closing. what "protects" a bank when someone borrows $5M to buy a house? the mortgage. if the buyer fails to make payments, the bank initiates foreclosure proceedings.
If it's done correctly, there will be a note and a mortgage/DoT. The loan will be serviced by a licensed, professional servicer as well.
You negotiate the terms with a seller (downpayment, loan term, interest rate, etc), and then you make payments monthly on this loan just like you would on a bank loan. Just swap in the seller for the bank.