Should I Offer Owner Financing?

What is the price of the home? If it qualifies for FHA, then you will only attract a very low quality borrowerer...

A property we are trying sell to in another state isn't moving. Should we offer owner financing?

Depends.

What are the pitfalls?

Buyer defaults and you re-own the home, but now in a lower priced market with potential rehab work required due to neglect of borrower...also, foreclosure process can be lengthy and expensive.

Will it sell faster?

Maybe.

Is a real estate attorney all I need?

yes, and a good one

Can I make it for a higher interest rate?

yes, because in general, the buyer will be of higher credit risk, so a higher rate would be in order

Can I sell the loan at a later date if necessary? To whom?

Depends upon borrower, ltv, etc. A local bank would be the best choice or hard money lender if rate is high enough

Thanks, Apt Boy! To answer your questions:

The property is around $450K, would otherwise require a jumbo mortgage, is that right?

What is a hard money lender? Are those the guys pay off your lottery winnings (time payments) in a lump sum?

The attraction is higher interest than is currently offered for CD's, etc. Plus none of the overhead and expenses associated with renters.

The property is around $450K, would otherwise require a jumbo mortgage, is that right?

No, depending upon area, FHA can be much higher ie in NYC, it is 700k area...you need to go to FHA website and see limit for your area

What is a hard money lender? Are those the guys pay off your lottery winnings (time payments) in a lump sum?

No, just a lender who lends against collateral value, not so much credit of borrower...ltv's must be lowerer and rates are mid-teens

The attraction is higher interest than is currently offered for CD's, etc. Plus none of the overhead and expenses associated with renters.

But risk of default, risk of late payments, and risk of your collateral value decreasing making your loan underwater

I wouldn't do owner financing unless it's imperative to sell.

I'm certaink FHA can do the loan, and if they can't, it's because the borrower is a big risk, and I certainly wouldn't want to deal with him.

www.esfunding.instantlender.com

Terrible idea. Slash the price to the bone first.

Here's the downside case of seller financing: If you offer seller financing, and the buyer takes it and takes possession of your old property, and then defaults, what are you going to do? You're not in that state's court system, it will take awhile to get the buyer out, there may be no assets to get a judgment against, and maybe your house is trashed and has to be rehabbed before it's resaleable.

ali r.
DG Neary Realty

SS- you are being too general, there are cases in which this makes sense.

There are many people (with and without $) that hate banks, do not trust them, etc. and will do anything to avoid them. By offering Seller-Fin, you may attract that type of borrower.

This is a long-shot, but you never know. Also, due to other reasons (legal or not) people do not have documented capital and this would be the only way for them to get a loan.

The only way I would do this is with a MAX 70% ltv at a above market rate (8%-12% + points)

As I said, other than these types of cases, you will only attract a low quality borrower which is not worth the risk

Checked the FHA loan limits, and this property is priced above the loan limit for our area.

Should we rent now and sell later? Not sure if the market will actually go up later.

"But risk of default, risk of late payments, and risk of your collateral value decreasing making your loan underwater"

We could rent it out, but wouldn't the risks above be the same if it was a rental? Tenant possession, default, etc.?

Would it make more sense to just provide seller financing for a smaller slice of the purchase price as a subordinated mortgage? For instance, the buyer puts down 20% of the price, a bank lends 50% on normal terms, and you take the remaining 30% as a subordinated note payable over time?

That way you are still taking a risk but only 30%, and if you provide very favorable terms then you may help get a buyer comfortable if you otherwise just aren't coming together on price. If the alternative is cutting the price by 20% then maybe 30% seller financing would be a better option.

We could rent it out, but wouldn't the risks above be the same if it was a rental? Tenant possession, default, etc.?

Rental eviction is much easier than foreclosure

Again, for the right buyer, it makes sense, but it is a very limited buyer pool that you would wnat to deal with

And Ali G., no need to repeat what I said (and not give good advise to boot), just so you can try and get some more free pr.

@Post87- But if there is a default, the chance of the second mortgage getting paid off is very low isn't it? The bank would be primary, and I would be secondary.

@Apt Boy: Does it make a difference that, for most buyers, this would probably be a second home? It is a resort area, with 90% of the properties being second homes.

Should I just rent it out?

Post87...creative thinking, but not a good idea...you are in a first loss position, with the bank now at a 50% ltv...if the borrower defaults, the bank controls the forecloser process (unless you buy them out) and now they can sell at a 50% ltv just so they are made whole and you are left with nothing.

Better to just reduce price by 30% and be down with it if that are the choices

Again, there ARE buyers out there with cash, but not willing to go to banks...that is your market to go after

NE - I would go both routes, try a "Seller Financing" campaign and see what happens, you may be surprised at the type of buyer that may be open to this...at the same time rent it out and see where the market goes

And for what it is worth, I know first hand of the extremly wealthy who are "afraid" of the system and would never go to a bank for anything, but would be open to a 50% ltv loan at a slightly above market rate

Well I'm sure the bank will give you a right of first refusal. So worst case, you pay them back their 50% and take the property, and put it back on the market. Then you still have the 20% equity piece you got from the buyer at closing, plus you have the property back.

Flmaozz. Seller financing = the last gasp of a dying re market.

You'll know its dead when someone asks 'should I torch my house, and collect fire insurance?'

To OP, just rent it out. Nominal flat line for re for 10 yrs, right Ali. Get with the geitner program.

My realtor's response, just received: "If the rates were really bad right now then I would say yes but they are still really good."

What does everyone think about offering cash back at closing? Say $5K or $10K? What type of buyer finds that compelling?

BTW-Realtor is advising 10% price chop, feels that will make it sell quickly.

What does everyone think about offering cash back at closing? Say $5K or $10K? What type of buyer finds that compelling?

One that has NO cash to pay for closing costs.

Realtor is advising 10% price chop, feels that will make it sell quickly

of course, 10% drop costs you 45k and them 2.7k (and really $675 after splits with other broker and firm)

If you don't need the $, rent it out and try seller-fin at the same time...otherwise, reduce price until you sell...case closed

Needsadvice. You needed advice before you bought. Does the monthlies hurt? Why don't you strategic default. Don't pay mortgage for a few months, take some skin off from the bad bad bad banks.

You sound desperate. That should be reflected in your price. Wouldn't it be a shame if a buyer bought your neighbor's home for $380k, when you would've been glad to take $350k? Maybe you should put it out at what you are willing to sell bf strategic default, so you can strategic default with a clean conscious. One other thing, 2nd home? Aren't you rich, I take it back, poor pretending to be rich with 150% ltv.

I recommend speaking to your accountant - it may make sense to rent the property for a year, even if you lose a little money at the end of the term. If you are converting a second/vacation home to an income property, there may be tax benefits (depending on your situation) from renting. If you find yourself taking a bit of a loss on the property when you sell, you may be able to write that loss off on your Schedule C.
Obviously I don't know your situation, but an accountant should be able to advise.
Tina
(Brooklyn agent)

Flamozzzzz. Yes Tina!!!!!!!! It ain't a loss if you can write it off!!!!!!!! No Fking wonder you are a borker!!!!!

Close your eyes and don't look at the $100k cap loss you are locking yourself into by renting!!!!!

Hahahaahahhahaahahaaaaaaaaaaaaa. Omfg. Hahahaahjaaaaaaaaa. Hahaaaaaaaaa. Haaaaaaaa. Haaaaaaa

I'm losing steam it too too funny. Oh no, it's starting again. HahahahaaaaaaaAaaaa hhhhaaaaHahahahahhahaah xhhahhahhahhahah

Yes you can use owner financing. Just place those words in your ads or let the buyers know that you are offering it. This will attract more buyers. These buyers might not be able to obtain conventional financing from banks. You say the property is not moving. Well that would depend on the type of property and the state that it's in. First you need to make sure you know what you want for your terms of a sale for owner financing. Then you need share that with the buyers. You will probably negotiate some of those terms also. Those terms would be: downpayment, interest rate, late fees, # months to pay and possibly a balloon payment if it's a short term. If you already have a RE attorney, he/she will make sure all the paperwork is correct for both parties before closing a sale.

Now your main 'pitfall' is that a buyer might default down the road and then you'll have to decide on possibly foreclosure and retaking the property. Your buyer might not have the greatest credit. If they don't know it then ask their permission to get.

Yes you can sell your 'note' later on. The reason for structuring you note right will help sell later on. Let me know if this helps or if you need help with it.

Scott