Financing a Buyer Personally?

[UTCVenturesLtd]

Has anyone sold a property where YOU hold the mortage for the buyer and not a BANK?

How do you set up the paperwork? Through a lawyer or through a bank?

Any low branches to watch out for?

I have a property for sale and a would be buyer... I sent him to see my mortgage broker first. I am thinking that he does not have a downpayment, but could make the payments if financed 100%. To me, someone who is unable to find a way to save a downpayment might have trouble finding a way to make payments as well thus creating a red flag.

I did a small financing arrangement for inlaws who were in a big bind unable to find accommodations where their work is... payments come in but in the first year of a three year deal, they missed three payments. They will make good as time goes on, but i am not impressed as they established a bad track record for being on time.

 

[MonteDobson]

Yes, essentially what you would be doing is called a Vendor Take Back. You become the bank and are holding a mortgage on the said property at the terms and conditions you and the buyer agree to. Any real estate lawyer can set this up very easily.

A few things to think about...

What is the ACTUAL MARKET VALUE of the home? (use appraisals, CMA etc)
Are you comfortable financing the property at 100%?
What if they can`t pay and you need to foreclose, how much capital will you be able to retain?
What terms, conditions and rates do you plan agree to? (ie. 5 yr mortgage at 6%)
Do you currently have any financing on this property? If so, you can`t to a VTB higher than your existing loan amount.
Is this the best use of your capital? Why not sell and invest the money elsewhere if this asset is underperforming?

Many things to think about, but remember...you hold the gold in this situation so you make the rules!

 

[Nir]

as a RE investor I`m sure you make more than 6% ROI so a VTB is not worth it for you UNLESS you have an opportunity to sell it significantly higher than market value to this buyer OR can not sell this property otherwise (without a VTB). just my $2. GL.

 

[Thomas Beyer]

QUOTE (investmart @ Aug 15 2009, 08:44 PM) as a RE investor I`m sure you make more than 6% ROI so a VTB is not worth it for you UNLESS you have an opportunity to sell it significantly higher than market value to this buyer OR can not sell this property otherwise (without a VTB). just my $2. GL.
indeed ..

get at least 20% or so in cash .. as a VTB @ 100% is way too risky !

Get a personal guarantee AND cross-collateral on 2 (or more) of his other assets if you really wish to sell with a 100% VTB .. as the chance of a default otherwise is too high !

Before you give a VTB, consider and know all the steps to take the property back !

 

[JimWhitelaw]

My father-in-law has done this on many properties. At least one of the properties he has "sold" several times and ended up taking the property back for non-payment. I don`t know the details but it sounds expensive, although he seems happy enough with his return. If you`re getting a decent deposit and higher than market rent in payments, maybe that can offset the costs of foreclosing and re-selling.

FWIW, selling, repossessing and reselling a single inventory unit is the basic business model behind the "we`ll finance anyone" auto dealers, so there`s a solid precedent for making money off people who can`t manage their finances.

Having said that, perhaps you should look into an "agreement for sale" arrangement. That way you retain title on the property until various commitments are met by the buyers (like a reasonable pre-payment and bank financing for the balance).

 

[Thomas Beyer]

QUOTE (JimWhitelaw @ Aug 15 2009, 11:46 PM) ...If you`re getting a decent deposit and higher than market rent in payments, maybe that can offset the costs of foreclosing and re-selling.

FWIW, selling, repossessing and reselling a single inventory unit is the basic business model behind the "we`ll finance anyone" auto dealers, so there`s a solid precedent for making money off people who can`t manage their finances.

indeed .. as long as the cash you received compensates you for the royal pain of foreclosing and not collecting interest for an extended period (coupled usually with property neglect and vacancies !!) .. as a foreclosure can take up to a year ! Ensure that you get at least 2 to 3 years worth of interest on the VTB in cash on closing ..

QUOTE (JimWhitelaw @ Aug 15 2009, 11:46 PM) ..... Having said that, perhaps you should look into an "agreement for sale" arrangement. That way you retain title on the property until various commitments are met by the buyers (like a reasonable pre-payment and bank financing for the balance).

indeed .. but the foreclosure process is not necessarily faster ... as the agreement-for-sale is like a 2nd mortgage i.e. registered on title and may take a court proceeding to take off title too !