What are the downside of seller financing?

[Account Closed]

My seller is retiring and willing to seller finance for great rates. 

What are the downsides? 

Can I take out commercial equity line of credit on seller financed property?

[Rich Weese]

I have used seller financing from both a buyers position and a seller's position! I started in real estate without very much in the way of money but I had a lot of time and was gaining knowledge quickly. I would look for a seller that  owned the property free and clear. He might not even be advertising it as seller finance. I would meet with him and ask what he planned on using the money for? If the answer is that he was just putting it in the bank, I would explain how he could be secured by making the loan to me and collect higher interest on his money.

I would also offer him one other tidbit that worked in numerous situations. An astute seller might not want to carry a note for a long period of time in fear of an emergency that might come up. I would offer him multiple notes secured by one trust  deed on the property. It might have been an aggregate of $100,000 with five $20,000 notes all with different balloon dates. If he got in trouble or had an emergency, he would likely be able to sell one note at a smaller discount then he would be facing if he sold the entire $100,000 note.

Recently, I've been in the sellers shoes. I have been selling off free and clear single-family residences and carrying the financing. I don't have needs for the cash so I know it works fine for me. A buyer normally is willing to pay a higher interest rate since they may be looking for owner financing due to difficulty qualifying with a institutional lender.I have obtained a much higher interest rate than what I would receive in any bank.

I have also used the same process with a buyer by giving him multiple notes with each secured by its own mortgage.