Seller financing, getting clear on pros and cons

[Kenneth LaVoie]

I'd love to sell part of our 8 building / 34 unit "mini empire" but the first thing everyone asks is "will you do seller financing" and frankly I just don't want to. We seller financed a SFH a few years back. We sold it for $60,000 and the woman cleaned her 401K out to give us 25K down. Can't lose, right? She and her daughter were late with the very first payment, after fits and starts for about a year, we had to foreclose which cost $5,500 (almost 10% of the purchase price!) and then of course we had to try to auction it first and the highest we got was 5k so we took it back and still have it. We're doing a RTO situation which should work out nice. But it was just a nightmare. Our fault? No "our" about it, it was MY fault. She misunderstood literally every term, and had the intellectual capacity of a 6th or 7th grader (not being disrespectful, this is quite accurate). I honestly should've said "no" but the 25K down made me think, "nobody in their right mind would default on this after putting so much down". So needless to say, I've destroyed my wife's trust in seller financing and she really needs to be on board, just a LITTLE anyway! The biggest opportunity I have is with our multi's. I know I could get much closer to asking price if I was willing to at least seller finance 100% of the downpayment or something like that ... but a multi is differnt ... it's a "business" vs. a "house" and would take much more effort to get back up and running if I had to take it back after someone "f***d it up". Anyway, I'm ranting but that was my purpose, just to get ideas from everyone on the pro's and cons / best case-worst case, of holding paper on larger multi family buildings.

[Nathan Gesner]

You have to find ways to mitigate the risk. Banks mitigate risk by requiring a certain level of credit-worthiness and strong employment history. Then they require a down-payment of 20%.

You got a down-payment of $25,000. It cost $5,500 to foreclose so you should still have $19,500 remaining. You lost a year of rent or mortgage payments which is probably another $10,000. So you profited $9,500 from the deal. Can you fill in the real numbers for me so I can see how much you actually lost?

Every deal has risk but there are ways to mitigate the risk. In fact, you can turn an owner-financing situation into a win even if the buyer defaults. You just have to structure it properly. It sounds like you're wife is not comfortable with that so stop trying to force it.