As we move into 2021, we are met with the realization that while some things change, the cycle of the real estate market always seems the same and keeps cycling through.
The ebb and flow of housing sales seems to go from abundance mode to scarcity mode. The same is true for the availability of traditional bank loans as well as seller carry-back notes.
Seller financing is always a solid strategy and, some years, due to economic conditions, is an essential tool for moving property.
If you are going to carry back a note, either due to wanting to or needing to, here are some tips.
Seller Financing Tips for Home Sellers
1. Review the Buyer’s Credit
If you are going to sell a property, you want to see what type of buyer (and potential payer) you are dealing with. Do they pay their bills on time? Do they have a bankruptcy? Have they had a foreclose on their previous home?
These are all questions you want to know the answer to before you agree to sell the home.
No one indicator has to kill the deal. But, you do want to enter into the transaction eyes wide open.
2. Get a Solid Down Payment and Interest Rate
There are plenty of people out there that do not qualify for traditional bank financing but still have a good amount of money to put down on the purchase of the property. The higher the down payment, the more likely they are to make their payments on time.
Unless you have no choice, ‘sweat equity’ down payments are not the way to go.
When it comes to interest rate if you are the seller, the higher, the better. We like to see notes of this nature starting at 9% – 10% BUT…there are always offsets.
For example, if someone were to put 20% down on the property, we would certainly offer a lower interest rate if that was a concern of theirs. Ideally, we would not want to go below 6%…but that is just a recommendation.
3. Use an Outside Servicer
Once you have a professional, do all the closing paperwork, set the payments up with an outside servicer (third party).
There are several advantages to using an outside servicer.
For starters, they will keep an excellent record of the payments – essential in the event you ever want to sell your note for a lump sum of cash.
Secondly, an outside servicer can handle collecting items like property tax and insurance – both of which you want to make sure are always current.