Owner financing - What would you do?

[Julie Kern]

I'm actually posting this on behalf of a friend who asked me this question today and I thought I would put it out to the BP community.  

She has a buyer who approached her and offered $150K cash for a property she and her husband own (they were not looking to sell - they were actually close to turning it over to a PM to rent for $950-$1000/month - negative cash flow situation).  They owe about $100K and an appraisal within the last year came back at $100K.  Now the buyer is saying he can't close on another property that would free up the full $150K until the end of the year, so he has offered a down payment of $50K, and asked them to finance the remaining $100K over the next 18 months at an interest rate of 3%. The interest rate on their mortgage is around 6%.  She wants to negotiate a higher interest rate from the buyer that is closer to the 6%.

Knowing very little about owner-financing, here are my thoughts/questions:

- They should go for it considering how much above market value the buyer is willing to pay

- It's ok to do a little negotiation on the interest rate, but not worth running the buyer off considering the premium he is paying for this property and the short time frame (18 months) of the loan.  Personally, if it were me I would accept it and close this deal ASAP before the buyer changes his mind.

- They are very unfamiliar with owner-financing - what should they be aware of going in?

Thanks in advance for input/feedback!!