Owner Finance - How Low Can You Go?

Question

Hello BP,

I know that setting up owner financing is not difficult nor should it cost much to set up and service. However, I am trying to acquire a parcel of land that is only $3,500. Since a perc test hasn't been done on the property I want the  owner to carry the note. His agent is claiming that at that price seller financing is cost prohibitive. I have been unable to find any info on how the  service fee and set up change for a lower note amount.

Is this true? How low can you go before seller financing doesn't make sense?

Account Closed · Answer

You're willing to pay ~ $1,500 in fees to finance a $3,500 property?  A 43% premium!?  Holy cow!  That's crazy talk.

If you want it that bad, put it on a credit card - it will cost you less.

Thomas S. · Answer

It is the responsibility of the buyer not the seller to cover the cost of setting it seller financing. Not really sure what costs the seller has that their agent is talking about.

I have paid upwards of $1200, as a buyer, to cover legal fees in setting up seller financing.

Dovid Staples · Answer

Thanks for the perspective @Andrew Johnson. I was going to get a quote for a perc test (it's somewhat remote area), but it turns out the agent was actually trying to hide the fact that the owner had past and I was dealing with his estate. The all cash value for the parcel in question is less the $3,500, so this deal isn't moving forward either way.

Andrew Johnson · Answer

@Dovid Staples Maybe what the agent is conveying is that the cost to set-up owner financing would be more than the perc test.  If the rationale for owner financing is the lack of a perc test then I'd pay for a perc test.  I think, on the practical side of things, you also have to put yourself in the shoes of the owner.  He won't want to have to make sure you're paying, current, have sent this months check for $50/month.  It's just not worth the hassle.  At least it wouldn't be worth it to me.  If you're pricing any real estate at $3,500 you just want it out of your life!  You're not going to through the process of selling it to make a killing, you just want it gone.  Owner financing just drags out the process of keeping it around --- just in a different form.

What does the perc test cost?

Andrew Postell · Answer

@Dovid Staples this sounds like the buyer just doesn't want to be involved with seller financing.  That's what it sounds like to me.

Dovid Staples · Answer

Thanks Thomas, and that's also exactly what I told the agent; that I would be covering the costs. Doesn't seem like this is gonna go anywhere at this point.

Owner Finance - How Low Can You Go?

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