Seller Financing

[Devan McClish]

I have done some research and have found that investors are wholesaling properties with little to no equity using owner/seller financing. How exactly does wholesaling work with seller financing on properties that have little to no equity? What type of investors would want to buy a house with owner financing in place?

[Bill Gulley]

Welcome to BP Dawn Rickabaugh, that is a good strategy.

I see Dawn specializes in SF so she is probably aware, for those who aren't-

If done improperly the straw man gets tagged as a broker modifying notes, so check your state laws.

I did many of these, structured in the beginning to wrap installments, you also become a non-owner occupied seller doing financing, another issue.

Adding a premium is fine, if you have enough time on the contract for the buyer to earn that back in the appreciation, otherwise you could have problems getting it appraised for the end financing that might be required. At the 100K, you can get 5% or so without much concern, just consider the term and value being there, otherwise you put the buyer in an poor position.

You also need to be prepared to actually buy, there is the due on sale, as rates rise, banks/lenders will be back to calling notes due. This then means that your buyer really needs to be close to being loanable, no trashy credit types or self employed who avoid taxes at every turn.

Another point, you might make the loan initially as an assumable loan with recourse (I know, most want non-recourse, but frankly that gets pretty cheesy and could certainly haunt you, so belly up, you also have the right to assume the note back as a cure). Name of the game here is don't screw over the seller.

I recently learned there are some new loan servicing requirements that may wrap up the seller financing, so best to get a servicer involved. :)