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ynlvr
LSU Fan
Baton Rouge
Member since Feb 2009
1993 posts
 Online 

Profit or Pitfalls of Seller Financed Home Sale
I have a property in Baton Rouge that has sat on the market for too long this year. I have a potential buyer interested in paying 10% ($25k on a $250k home) if I will finance the balance. I would hold title until payoff is 100% complete.

What do I need to know as far as potential problems with this deal? How do I contract to protect myself? Buyer is talking 5 to 10 year amortization. I'd like to get the booger off my finger but this doesn't quite get it. However, it gets me closer to "off my books".


baldona
Auburn Fan
Florida
Member since Feb 2016
7041 posts

re: Profit or Pitfalls of Seller Financed Home Sale
Why do they want seller financing? That's usually a huge red flag. If they have 10% and can pay it off in 10 years then they should be able to get a loan unless they have horrendous credit or something in which you don't want to be their lender.

Generally speaking the only reason to do seller financing is because you as the seller can set up great terms for yourself.


ynlvr
LSU Fan
Baton Rouge
Member since Feb 2009
1993 posts
 Online 

re: Profit or Pitfalls of Seller Financed Home Sale
Thanks. I'll keep in mind that this is most likely a risky loan that does not qualify for standard financing and price accordingly. I haven't met the buyers yet. I just received the first sniff today. I suppose i will have to do some strong due diligence. I realize I will need to construct a strong contract to protect myself as much as possible. Whatever that entails.


BigAppleTiger
LSU Fan
New York City
Member since Dec 2008
9188 posts

re: Profit or Pitfalls of Seller Financed Home Sale
A bond for deed is the most secure form of seller financing, as long as the down payment suits your immediate needs and makes the process worth it for you financially. This form of sale is good for buyers who have money and steady income but have taken a hit in their credit that disallows financing for some reason. Per Lousiana law, as long as they meet your down payment and monthly amortization schedule and loan term as agreed upon by both parties, there is no way for the seller to lose. If they miss one payment beyond 45 days the whole amount previously paid and the deposit will be forfeit to the seller. Even if they pay down payment at closing and every note for 9 years and 11 months- if they miss the last one beyond 45 days the entire amount paid and the deed will go back to the seller.


ynlvr
LSU Fan
Baton Rouge
Member since Feb 2009
1993 posts
 Online 

re: Profit or Pitfalls of Seller Financed Home Sale
quote:

BigAppleTiger


This is good information. Thanks


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LPTReb
Ole Miss Fan
Member since Jul 2016
188 posts

re: Profit or Pitfalls of Seller Financed Home Sale
I had to do this after the market tanked and I couldn’t sell my house for over a year. They paid me fine until early this year. Then they just bailed. The house, which was a pretty nice house, was absolutely trashed. I had to put around $60k into it just to get it back to being a fairly nice house again, and I’m finally about to put it on the market. I’m now going to lose my arse on it. Just wait until you can actually sell it and be totally rid of it.


ynlvr
LSU Fan
Baton Rouge
Member since Feb 2009
1993 posts
 Online 

re: Profit or Pitfalls of Seller Financed Home Sale
Ugh! This is what concerns me. Some people are just not homeowner material.


reverendotis
LSU Fan
the jawbone of an ass
Member since Nov 2007
3574 posts

re: Profit or Pitfalls of Seller Financed Home Sale
If a bank whose basic organizing principle is lending money won't lend them money...


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baldona
Auburn Fan
Florida
Member since Feb 2016
7041 posts

re: Profit or Pitfalls of Seller Financed Home Sale
The 5 to 10 amortization is what's throwing me off. Either they have absolutely no idea what they are talking about, they are a scammer, or they are some type of real estate investor that can only get another loan through seller financing but in that case it makes no sense for them to pay full value.

So I'm guessing once you meet these people or find out more information, you'll find it makes no sense to do this.


bayou choupique
LSU Fan
the banks of bayou choupique
Member since Oct 2014
869 posts

re: Profit or Pitfalls of Seller Financed Home Sale
I would not do it. Something is a red flag if they have 10% and can't obtain a traditional loan. Offer some incentives when you list your house if you want to look attractive to other buyers.


Fat Bastard
Boston College Fan
Paradise
Member since Mar 2009
35520 posts

re: Profit or Pitfalls of Seller Financed Home Sale
quote:

The 5 to 10 amortization is what's throwing me off.


many private lenders do 10 year amortization. private people do not sit back and give you a 30 year term normally.
This post was edited on 12/6 at 9:45 pm


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Fat Bastard
Boston College Fan
Paradise
Member since Mar 2009
35520 posts

re: Profit or Pitfalls of Seller Financed Home Sale
quote:

Something is a red flag if they have 10% and can't obtain a traditional loan.


not really. maybe he is out of fannie mae backed loans if he is a serious investor or it might be credit(more likely) and/or cash. owner financing can be done to be a win-win. the seller/owner needs to dictate terms in contract. if he can foreclose he keeps all money and he can start over again.


baldona
Auburn Fan
Florida
Member since Feb 2016
7041 posts

re: Profit or Pitfalls of Seller Financed Home Sale
quote:

not really. maybe he is out of fannie mae backed loans if he is a serious investor or it might be credit(more likely) and/or cash. owner financing can be done to be a win-win. the seller/owner needs to dictate terms in contract. if he can foreclose he keeps all money and he can start over again.


Certainly, but what kind of investor with that many properties is buying a $250k property at full retail value? That doesn't make sense unless there are details missing like its a $400k house he is trying to sell for $250k because it needs something major.

Just because he can foreclose and get the house back, doesn't make it a wise financial move. The buyer would still have to be a viable "tenant".

As for the 5 to 10 year amortization, I'm not saying those terms are odd in and of themselves. But in this situation they are certainly odd. This seems more like a situation in which the buyer can't get a mortgage due to bad credit, not because they are an investor. Therefore, what kind of buyer in that situation is looking to pay it off in 10 years?
This post was edited on 12/7 at 7:57 am


bobaftt1212
Virginia Tech Fan
Hills of TN
Member since Mar 2013
1228 posts

re: Profit or Pitfalls of Seller Financed Home Sale
I'm not sure why getting 25000 down and an inflated monthly payment would be a bad gig. I do rentals and if I could get a 25000 deposit and take their money if they missed a payment and do it again I would be selling houses instead.


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TigerRob20
LSU Fan
Baton Rouge
Member since Nov 2008
3513 posts

re: Profit or Pitfalls of Seller Financed Home Sale
quote:

A bond for deed is the most secure form of seller financing, as long as the down payment suits your immediate needs and makes the process worth it for you financially. This form of sale is good for buyers who have money and steady income but have taken a hit in their credit that disallows financing for some reason. Per Lousiana law, as long as they meet your down payment and monthly amortization schedule and loan term as agreed upon by both parties, there is no way for the seller to lose. If they miss one payment beyond 45 days the whole amount previously paid and the deposit will be forfeit to the seller. Even if they pay down payment at closing and every note for 9 years and 11 months- if they miss the last one beyond 45 days the entire amount paid and the deed will go back to the seller.




My dad's friend has done this over and over again with some properties. Seller financing, downpayment, collect rent/payments, buyer screws up, rinse and repeat.



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