First owner-finance deal; interest only?

[Francis Rusnak]

We have a wholesale deal we are working on closing, but the end-buyer doesn't have all the cash right now. Since this is a smaller property we have the finances to just buy it ourselves, and the end-buyer suggested us doing owner-finance until she can get her credit right; she predicts 3-6 months.

Curious of people's thoughts on these terms as we've never done an owner-finance before:

15% downpayment

12% interest

ballon payment due in 8 months

Initially wanted to do 20% down but we met in the middle at 15% as she doesn't have enough for 20. Thinking if we should charge interest-only payments or principal and interest. Also, I told her the rates would go up if the ballon payment wasn't met after 8 months; what would be a reasonable amount to raise it to? Wanted to double it to 24% since we really don't want to do this long term and are more doing this just to complete the wholesale deal. 

Appreciate any feedback on this. 

[Mitch Messer]

Hey@Francis Rusnak. Let's back up a bit: Why are you working with this particular buyer? To a wholesaler, a buyer who "doesn't have all the cash right now" is not a buyer. Particularly if you were clear from the start that this was a cash deal. If she's the only buyer who expressed interest in the deal, then it might not be a deal after all.

Unless you really want to be in the hard money lending business, I'd send your buyer to an actual HML or suggest she find a private lender. As an investor, how she gets the funds is her responsibility.

We specialize in owner finance deals for our investors, but only when it makes sense for us and for the buyer, never as a fallback for a "buyer" without adequate funds to close.

Moreover, we operate in Georgia, where foreclosure is very swift and relatively cheap. Unless that's also true of Illinois, I wouldn't recommend you go down this path.