As A Seller How Do I structure Owner Financing.

17 Replies

So I have a large piece of land I paid $140,000 for in 2015 and I have it listed for sale now and a guy made me an incredible offer, but I have to owner finance it. He wants to pay me $2200/mo for 10 years with $50k down. I was honestly hoping to sell it for $215k or so but this comes out to $300k+ over the time. How do I go about structuring all of this with an amortization table and what are ramifications if payments are missed ie how many are missed before a foreclosure happens. I have never done this before and I was selling the land by owner since it was paid for and was hoping for a quick and easy transaction. I literally just got this offer 30 minutes ago and my title company I used for my other deals is closed for the day now.

Just trying to gather more info on how to structure all this to minimize headaches in case tenant doesnt pay. Thanks again.

@Danny N. What interest rate did he propose?

You would need an attorney to draw up the note, have it recorded with the county.

If he misses payments you foreclose according to state law I believe

@Danny N let me know how you do this.  

Actually, there is a guy here in Houston that you might reach out to, @Jerel Ehlert could put this together for you, being a RE attorney.  Getting advise from an actual attorney that works in this space would better.

Or go to Patten Law Firm, they can do the close for you and make sure you have title insurance, etc.

You mentioned you already have a title company you work with. Your title company should be able to handle all of this for you. Just hand them a contract with the agreed upon terms, and they'll close the transaction (to include having an attorney draw up the mortgage and note - usually at the buyer's expense, but this should be spelled out in the contract). 

For your title/closing agent, it really isn't much different that the seller buying the property with bank financing - the key difference is you're the bank in this case, of course. 

@Danny N. since you know the proposed terms you can figure out the effective interest rate you would be receiving using a amortization calculator.  It looks like that works out to be 10% interest if you consider today's price as $215 K

You get to decide the terms of the contract and what penalties and or late fees are. 

There are two separate things you need; a Promissory note, and a security instrument, typically a mortgage or deed of trust. The note is the evidence of the debt. The security instrument is allows you to foreclose. The security instrument is recorded in the land records. Usually the note is not. 

While any title company can write up the loan documents for you, you want a good one with experience doing notes. They should ask you some questions about what terms you want. You may want to ask around at some real estate groups who the hard money lenders are. Then ask the hard money lenders who they use to write up their loan docs. 

Another really good houston title company that does a great job with seller financing is Infinity Title.

You'd have the first lien position so you can foreclose if the buyer stops paying.   Texas law is a relatively easy state for foreclosures - if necessary.

A $50K down payment is a very good down payment so that should give you some confidence in the buyer.   If you do have to foreclose, you get to keep the $50K down payment...

Contact Sharon Ferrell at Infinity Title in Houston

I have to ask the "obvious" question here.  Can anyone help me understand why a buyer would sign themselves up for a 10% interest rate?  I'm asking because I'm working on my first SF deal right now where I'm the buyer trying to figure out what terms to offer.    

$207K list price, rent is $2025/mo.  seller is interested in SF and that's all I've got to start with (PM me if you are interested in add'l financials).  Can anyone offer some good suggestions for me as a buyer? Thank you in advance!  

Well in my case it was a piece land, thats hard to finance I believe, not sure. The land had a tax value of I believe $120k so paying my price wouldn't have worked I think with a loan. Was the piece worth it? Well it was cleared and fenced, that costs money that the tax appraisal doesnt show and the area was up and coming. The guy wanted it for a used car lot so he ended up going through on the deal. The title company I used made an amortization table and everything, it was much simpler than I thought.

@Josh Crockett - Basically due to difficulties getting financing in another fashion on an incredible deal. As this poster mentioned, it may have been difficult to get an appraisal showing the true value to secure the loan. Other people may not have great credit or may not have a lot to put down to get bank financing, but think the deal is too good to pass up despite the interest. It may still be cheaper than renting even with the interest. Things like that. 

But in your case, I wouldn't start there :) I'd start with not saying anything about interest and see if they point that out, go from there...

Thanks @Danny N. & @Rachel Fazio for the input!  I really appreciate the BP forum and knowledge held in the members here.  I figure I should learn a lot about everything we could possibly use in our transactions and you guys have expanded the bubble!

I'm still trying to setup in my head the Seller Financing deal that is better than standard financing.  It sounds like that's really to be found if/when the property is owned free and clear and/or the seller is super motivated!

@Josh Crockett also consider that as a buyer if you hit that magic 10 mortgages you can’t get traditional financing so sometimes either before and certainly after you get to that point seller financing just makes more sense. Especially if you know you can cash flow even with that rate. Eventually you refi out. 

@Josh Crockett , wish I could, truth be told I'm knew to REI and have good credit so my early deals will likely be tradition when possible. But I've already come across situations where that won't be an option, like not having the 20-25% to put down.

More than likely if traditional financing is an option, especially early in the journey, then probably best to go that route unless of course you can convince the seller to do a better interest rate or terms. 

The key is to know what the sellers motivations are. If they need cash to buy an RV and travel the country, or pay some big medical bill or bail someone in their family out of a bad situation then seller financing likely won’t interest them. But if they have liquid and just want out of the property and the headaches then maybe a monthly payment to help them enjoy their new life will be very beneficial to them.  

Key is to get to know the seller and what motivates them and work your deal around that. 

Deals are people and always will be, the property is just the tangible asset in the equation. So you have to first find out what the sellers goals and motivation are then you can determine your strategy. 

@Derek Tellier could't agree more.  Deals are people.  I'm trying to sift through some of the real estate agents now in this other deal I'm working on.  Can't tell if I'm being rude or just doing what I need to do to get to the seller directly and have that kind of conversation.  Does anyone have a good way of getting to the seller in this kind of situation?  Both have REA's who are trying to earn their money but at the same time a candid, direct conversation could solve a lot of the negotiating at this point I feel like.

With an agent they owe fudiciary responsibility to their clients. All you can do is politely request the agent give your contact info to the seller and ask them to contact you. If they signed an exclusive agreement with the seller they’ll get their commission regardless. 

Other option is using tax/county records to identify the owner and make an attempt to contact them directly or just knock on the door! 

Just know the seller may have hired an agent because they don’t want to deal with buyers themselves. So you may get a quick rejection to even a conversation. 

However if the listing sits for a while they may become more receptive to it as time goes by.