Selling with Seller Financing? What are note buyers looking for?

Question

What has been your experience selling with seller financing? Are you basically a glorified landlord or has your experience been better? What were the terms of your your loan? Did you sell the loan to a note buyer? What loan terms are note buyers looking for?

I know a lot of questions but your expertise would be appreciated!

Divin Kanyama · Answer

@Joseph Weisenbloom Seller financing can be a good tool, but it helps to think of it less like “being a landlord” and more like becoming the bank. The upside is that you may create steady income, spread out the tax impact, and potentially sell a property to a buyer who may not fit traditional financing. The downside is that you still need to underwrite the buyer carefully, document everything properly, and be prepared for what happens if they stop paying.

A big difference from being a landlord is that you usually are not dealing with repairs, tenants, or day-to-day property issues if the sale is structured correctly. But you do still have risk tied to the buyer’s ability to pay and the property’s value as collateral. So the quality of the buyer, down payment, interest rate, amortization, balloon, and legal documents matter a lot.

In general, stronger terms usually mean a meaningful down payment, a market or above-market interest rate, clear repayment terms, proper insurance requirements, taxes kept current, and a recorded note and deed of trust or mortgage. A balloon can also be useful, but it should be realistic enough that the buyer has a path to refinance or pay it off.

If the plan is to sell the note later, note buyers usually care about things like seasoning, payment history, borrower credit, equity/down payment, interest rate, remaining balance, property type, lien position, and how clean the paperwork is. A seasoned note with a solid payment history and good borrower equity is usually more attractive than a brand-new note with little down.

So overall, it can be better than landlording in the sense that it is more passive, but it is not risk-free passive income. It is more like lending against a property, and the deal needs to be structured with that mindset from the beginning.

Joseph Weisenbloom · Answer

@Divin Kanyama Wow this is a great answer! Thank you!