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Selling Real Estate With Owner Financing for a Quick Sale

In today’s crazy world of real estate finance, waiting for a buyer to get financing to buy your property can be nerve racking. That’s where providing seller financing combined with selling the note to commercial note buyers or residential note buyers can really help sell your property quickly and get you cash fast. The downside to seller, aka owner financing is the time to get your money back. However, if you play your cards right you can get your money out of your property quickly if you are willing to take a discount on the seller financed note you create from the sale. Here are a few tips to insure you take as little discount as possible when selling an owner financed note.

  1. Check the credit of the borrower to be sure their credit will not hurt you on the sale of your note and despite what many believe, not all property buyers have bad credit. Many just don’t have sufficient “documentable” income often because of being self employed. Personally, I would not seller finance a property to anyone with a mid (check all 3 scores) credit score of less than 680. 700 would be even better. The reason credit affects the discount is it affects the discount rate applied to the future stream of income and better credit borrowers as perceived by a note buyer means less risk which plays into their discount rate.
  2. Require a large down payment. This gets you a nice chunk of money now and reduces the amount of the note and resulting discount. Don’t underestimate how much of a down payment prospective buyers can bring to the table. Many have significant monies available for the purchase.
  3. Charge an above market interest rate. After all, you are the bank and in control and the buyer probably can’t or doesn’t want t go through the hassle of a conventional bank loan and who could blame them if there is an alternative. A higher interest rate results in a higher payment, particularly when combined with a shorter amortization period resulting in a lower percentage discount amount.
  4. Set as low an amortization period as possible. This combined with an above market (higher) interest rate both shortens the time period the note buyer will discount the note. Time really is money, which is why many real estate sellers that owner finance leave a lot of money on the table. Don’t be one of them.

There you have it, a way to move a property fast in a not so friendly real estate market. You should definitely consider this tactic when you need to sell a property fast and have some room for a discount on your sale. You can contact one of several residential real estate note buyer or commercial note buyers to get a quote on the sale of your real estate note. Bottom line is to be selective and don’t just jump at the first prospective buyer. Being patient will pay off with potentially much more cash in your pocket, something we all strive for.