Seller Financing, where to start and what to expect...

[Jeff Wittig]

Hello BP community!
Been interested in learning more about acquiring property's for buy and hold using seller financing.  Have you done it and how, what were the terms you set, did you have a lawyer set it up or someone else? Just wanting to get as much info on this subject as I can as I'm leaving my w-2 job soon and going self employed so i'm looking at it as a viable option for financing deals.
Thanks everyone!
Jeff Wittig

[Liz Brumer-Smith]

Hi Jeff! 

Getting creative with seller financing is so fun! You have the option to chose the terms to meet the yield you desire.

While there are certain things you can do to create a "good note" or rather a more marketable note in regards to the terms, it really comes down to what you want out of the note.

1. How much money do you have invested into the property at this time? Knowing this number will help you calculate your yield based on the P&I payment.
2. Is your goal cash flow? If so, what amount do you want or need each month to meet your desired yield?
3. Who is your buyer? *It makes a difference if they are owner occupant vs. an investor
4. Make sure your interest rate won't be seen as "predatory lending" - keep it reasonable for a private loan, in the 7% - 9% range, although you should consult your MLO to make sure you are complaint with the state or legislative guidelines.
5. Get a good downpayment - this often shows a stronger equitable interest and likelihood to perform over the life of the loan.
6. Balloon or no ballon that is the question: While balloons increase the ROI of your overall note, there is always a risk that they won't perform. You have to determine if you want one or not.
7. Term or Length of Loan: Longer is typically better, you collect more interest! We suggest at least a 15 year loan, but there is nothing wrong with going longer.
8. Are you going to sell the note eventually or do you want to keep it long term? If you want to sell the loan you have to think about it from the perspective of the note buyer. When will you want to take this to the market? Understand what they're looking for so you know you can get a good rate when they buy the note from you!

We ALWAYS recommend using a licensed mortgage originator (MLO) to create the note and mortgage. They should keep you compliant with all state and federal regulator rules and can ensure the loan is being created and underwritten to the proper guidelines. If you can't find always make sure an attorney helps you draft it. Also make sure you know before hand if you're servicing the loan, or paying someone to do it for you - as that where payments will be sent. Also, will you have it escrowed? 

Lastly, having quality paperwork when it comes to sell is important. Keep good records of payments (and we recommend using a third party servicer such as FCI for a nominal fee), and make sure you always keep the originals safe! 

Hope this helps! :)

Liz from Note Investing Academy