For Sale by Owner, and Seller finance

[Spencer Coleman]

Hi Bp, 

I’m a new investor and still learning quite a bit; I’ve been driving for dollars around my current neighborhood, and came across a home that is a for sale by owner and offering seller/owner finance. My question is what are a few essentials that you look for in a seller finance contract that protect both the buyer and seller. I have sought advice from a real estate agent whom is a part of my family and she enlightened me with the potential pros and cons of a seller finance deals and what they could typically be used for. Also in listening to the bigger pockets podcast I have heard how fantastic an opportunity seller financing could be. Thus I would love to gain some more knowledge of things to be carful of and ways to potentially utilize this type of financing to the utmost. Any guidance or anecdotal information would be greatly appreciated! 

Thank you for taking the time to read my post! 

[Marco Bario]

@Spencer Coleman

You mentioned protecting the buyer and the seller…

Seller:

1. The ultimate payor in any real estate secured transaction is real estate. When I buy loans I look at the value of the property, the property type, its condition, and its location.

2. If you're going to purchase using an LLC, trust, etc the Seller would be smart to require a personal guarantee from you and at the very least run your credit report. It doesn't sound like you're looking to occupy these properties, but if you are there's another level of underwriting and compliance actions I'd recommend.

3. Close with a title company

4. Require a lender's title insurance policy. Often Sellers will ask Buyers to pay for this. 

5. Good documents provided by or at least reviewed by someone such as an Attorney or Title Company licensed in the state and active in the county where the property is located.

6. Stay on top of taxes and insurance. 

Buyer:

1. Convince the Seller to use a licensed loan servicer to collect and process payments. This could have been placed under either heading because there are benefits to both - but for the Buyer, there are verified records of payments made, tax reports, the ability to pay using ACH, generating payoff statements, and more...

2. Close with a title company

3. Review all of the closing documents at least 3 days prior to closing. Mistakes happen. The closing table isn't the place to look for them.

I believe I covered all of the big ones.