Sellers that offer owner financing would do well when putting together financing for a buyer to consider the future sale of the note even if selling the note in the future is not a consideration presently. We have no idea what the future holds so it is in the best interest of the seller to structure the financing in the beginning in such a way that top prices can be obtained should you decide you want to “sell my note” in the future.
Although a seller would like to obtain at least thirty percent of the sale price in the initial down payment, this is unlikely especially in the current economy. Twenty percent is the norm you should expect and in some cases, ten percent. If at least ten percent cannot be obtained, you should seriously consider finding another buyer since future potential for receiving a good price for your note if you sell will be seriously curtailed. Obtaining a higher percentage down payment reduces risks substantially since a buyer is less likely to walk away from a property or be foreclosed on with a higher rate of investment in the property. Future investors will also be less likely to consider your note with a low down payment since this elevates their risk levels as well.
Your buyer’s credit rating will also have a substantial evaluation impact when investors consider your note for purchase. Owner financing can often help people with less than perfect credit scores, but sellers considering the sale of their note to investors at some time in the future, should consider the impact of your buyer’s credit rating on a future sale. Investors will look at your buyers credit rating since their habits of paying in the past will determine how they will pay them should they buy your note. The interest rate of your owner financing note will also be a consideration and should be a minimum of two to four percent higher than what can be had a traditional lending institution.
It’s true, by offering owner financing to people that cannot obtain traditional financing gives you a wider market in which to expose your properties, it does have a down side if not structured properly. Working with your buyer and negotiating terms of the financing can be ideal for both parties. However, if you give too much a way in the structure of the financing, you may be severely limiting your ability to market the note properly in the future.
