Owner Financing? What do I need to know?

[Laura Minard]

Hey Bigger Pockets!  

We have an opportunity to buy a property so that I can open my own homeschool learning community in my new town in Maryville, TN. The property is 3.5 acres, has two manufactured homes on it that are rented, and a 3500 sf commercial building which we will use for our homeschool learning center. The owner said he is open to financing it for us as there are no comps and no actual home on the property.  I wrote up an offer that makes sense to us. It is under asking but the owner financing is .25% over prime at 5% for 15 years.  We included a 5% of principal pre-payment penalty clause.  I will be presenting the offer this week, I met the owner and know a lot about him and why he is selling.  Would love any wisdom around owner financing!

[JD Martin]

Quote from @Laura Minard:

Hey Bigger Pockets!  

We have an opportunity to buy a property so that I can open my own homeschool learning community in my new town in Maryville, TN. The property is 3.5 acres, has two manufactured homes on it that are rented, and a 3500 sf commercial building which we will use for our homeschool learning center. The owner said he is open to financing it for us as there are no comps and no actual home on the property.  I wrote up an offer that makes sense to us. It is under asking but the owner financing is .25% over prime at 5% for 15 years.  We included a 5% of principal pre-payment penalty clause.  I will be presenting the offer this week, I met the owner and know a lot about him and why he is selling.  Would love any wisdom around owner financing!

 Don't sign anything until you've had a competent real estate attorney review it. Even if the seller is your brother. Don't make any offers that have no contingencies in them such as an inspection period, ability to deliver clean title, etc. You don't want to end up like the people in James McMurtry's "Choctaw Bingo":

He's cut that corner pasture into acre lots, He sells 'em owner financed
Strictly to them that's got no kind of credit 'Cause he knows they're slackers
When they miss that payment, Then he takes it back

[Laura Minard]

Thank you! Yes we have an inspection and appraisal contingency and will find a good real estate attorney to review the contract!

[Chris Seveney]

@Laura Minard

I would not put a prepayment penalty’s in the agreement. As others mentioned make sure an attorney reviews everything and go through a traditional closing.

FWIW - if I were to owner finance I would be looking for more than 5%. So be prepared to discuss a higher rate. Also I did not see a mention of down payment which will most likely also come up