How do I calculate the net worth of an owner financed property?
I'm the party doing the owner financing.
Net worth is the same as any net: Assets - Debts.
I am guessing that you want to know if the person your are financing has a pot to do their business in.
Have them fill out a form 1003 (online for free) and pull a credit report. You can ask for tax returns etc. if you need to. If it's commercial, then have them send you their P&L's, taxes, personal financial statements etc. You can google what is typically required for a commercial mortgage. Make your decisions from there.
If you want to sell the note later on, the more documentation, the better the price. If you want to hold, consider a bond for a deed, or a deed in lieu type arraignment, depending on what your attorney advises.
In calculating my net worth I don't know what I should put down for the house that I owner financed.
My other properties, no problem. Just this one, I don't know how to list its net worth for me. If I was the one buying it, it would be easy.
you put down how much the person still owes you minus any loans you have on the property
The fact the house is owner financed vs traditional financed makes no difference. Your net worth from this property is just its value minus the debt.
ok now I am confused
YOU hold the note if you bought the property with owner finance?
I think his question is coming down to whether he should be calculating the value of the property itself or the value of the note he has for the property or both. Does he just count the value of the property he sold, or does he count the entire value of the note over the full term. I think it's a good question and I don't know the answer.
My uneducated guess would be to use the value of the note to determine net worth, since it would already include the value of the property and the note value would be a higher value than the property itself.
I'd be interested to hear from someone who actually knows the answer because now I'm curious.
I have one of these, sold on contract 10 years ago.
I calculate the 'value' of the asset as the note balance - $128k. What I would receive if he paid me off, NOT the lifetime (20 years) of the $1150/mo payment. That would be an income item.
I owe nothing, so my NW is $128k on this one.
If they default and I get the house back, I will use the house value, say $175k.
So, I would use the principal balance of the loan owed to you minus what you owe @Donald Dickerson , if anything.
Hope this helps.
Thanks everyone. I think what makes most since is what his payoff balance is. I have no debts against this property.
If used the total value, there would be duplication, because his net worth on the property is his equity, whereas his debt on this property would be my asset.