Financial Storms Offer Advantages to Sellers Willing to Carry Paper
I follow the work of guys like Bill Bonner, publisher of The Daily Reckoning:
“While U.S. business still seems fairly solid, generally, the financial sector is hurting. The banks say they will cut as many as 200,000 jobs. George Soros, speaking on the BBC last night, said he thought this was just part of a very big, very long credit cycle downturn. Credit has been expanding since the end of WWII. Now he thinks it will contract for a long time.“
Now, to some people, it might seem like I’m in with the doom and gloomers, but to me, being a little bit contrarian is a way to prepare realistically so I can set myself up for success regardless of what happens in the overall marketplace.
I’m actually excited for the opportunities that will arise, and I invite you to get on board. The ship may be going into the storm, but there are definite ways to make sure your hull is water tight.
As a property owner who might want or need to sell now or in the near future, you don’t have to be at the mercy of the institutional lending community. Flexible sellers can create their own liquidity, become the bank on their own property, and maneuver around the ailing banking industry altogether.
When institutional credit is contracting, sellers can do a lot to mitigate the damage. Let’s face it, these days we need more flexibility and more tools to meet the needs of buyers and sellers and get those escrows closed!
I love the deals where we don’t even have to work with the banks, and there are more and more of them all the time. So why would a seller offer terms?
CARRYBACK ADVANTAGES FOR THE SELLER:
- Getting top price by taking terms rather than all cash.
- Deferring taxes now on any gain by using an installment sale.
- Receiving a higher interest rate than if you put the proceeds from a cash sale in the bank, a CD, or money market fund.
- Monthly income secured by property you understand and whose value you know.
- Properties that banks don’t like to underwrite can be sold quickly and easily. Some typical challenges include: commercial, land, non-conforming, zoning issues, older homes, easement problems, and special use buildings.
- Larger number of prospective buyers and a quicker sale because you offer seller financing. Using the terms “SELLER FINANCING” or “OWNER WILL CARRY” on a FOR SALE sign or classified advertisement will attract a larger number of prospective buyers.
CARRYBACK ADVANTAGES FOR THE BUYER:
- In some parts of the country, very few potential buyers can qualify for bank financing. Perhaps they’re self-employed, or have an undesirable debt-to-income ratio, or credit problems that have never been resolved. These are not necessarily unworthy buyers, they just can’t get a bank loan.
- Though a buyer may pay a higher price, he may get more favorable terms (e.g. interest rate) than he could get at a bank.
- Most owner carry back transactions have much lower closing costs. There are no loan origination fees, appraisal fees, or other hidden charges. This usually shaves off about 2% of the purchase price of the home for the buyer, drastically cutting closing costs.
- Seller carryback notes secured by property sold in California (and some other states) carry no personal liability. The property is the sole security for the debt. So, if you, the buyer, for some reason cannot meet your debt obligations, the note holder (seller) can take the property back, but can’t sue you for anything above and beyond that. The property must satisfy the note completely.
- Buyers can say good-bye to the grueling and often humiliating process of getting a loan. There are no eternal and esoteric lists of conditions to meet. Escrow can close quickly and easily.
- For some buyers, seller financing makes all the difference in their ability to be home owners.
It is my belief that sellers who can and will offer terms are going to out-perform the market, PLUS they can earn much-needed brownie points, which everyone needs. These amazing, forward-thinking sellers/trust deed investors will be doing the market a favor by providing some much-needed liquidity.
Agents who are comfortable guiding their clients through this process will also out-perform their counterparts as they continue to close deals where the faint of heart huddle helplessly as the clouds thicken.