Owner-financing, also called seller-financing, is a term used for properties or businesses that have been sold privately, without the use of a traditional bank to lend the borrower/buyer money. Instead, the seller of the collateral (a business or a property) will finance the sale themselves and carry back a mortgage note or a carry back business note. So why is it important to learn about owner financed mortgage or business notes when selling a property or business?
The property or business seller will act as the bank collecting interest on the money they lend. This transaction can be very beneficial to both buyer and seller as it allows the property sale to move much quicker than traditional transaction using a bank and real estate agent, etc. In addition to the streamlined process, the borrower does not have to prove income and debt-to-income, which usually will not be possible with a bank.
Chances of Success Using Owner-Financed Notes
A good candidate for whom to carry an owner-financed mortgage note or business note is a person that has a decent credit score and the ability to put down an above-average down payment. A business or property seller using a seller-carry back note to move a their collateral quickly must perform a small amount of diligence in order to minimize their exposure to risk down the road. Risk is a term used to describe the possibility of default/non-payment, or property value decreasing, among others. Most people thinking about creating a seller-financed note do not usually like the idea of being a bank for the next 10 to 30 years (depending on the loan’s structure), which is why we offer an exit strategy that most owner-financed note holders overlook which is: selling the seller carry-back note to a note buyer once the sale has been completed.
If you are thinking about creating a note to sell your property and then sell owner financed note to a note buyer, you must structure the note in a way to make it attractive to the mortgage note investor, thus increasing your chances of receiving top-dollar for the seller-carry back note.
Creating a Valuable Mortgage Note to Sell to an Investor
When Seller-Financing (or owner-carrying) a business note as the result of a small business sale is one of the very few options left for small business sellers in this downed market. If you do plan on seller-financing a small business sale over the next five to ten years, rest assured that there is a sound exit strategy for you and/or you corporation/client. This consists of creating the most valuable business note possible in order to resell it on the secondary loan market for a lump sum of cash.
Creating a Valuable Business Note to Sell to an Investor
When Seller-Financing (or owner-carrying) a mortgage note as the result of a property sale is becoming the “norm” in the downward-leaning economy, and as most people see it, we are in it for the long haul. If you do plan on seller-financing a property sale and you want to simply sell the mortgage note instead of playing the bank, rest assured that there is a sound exit strategy for you. This consists of creating the most valuable mortgage note possible in order to resell it on the secondary loan market for a lump sum of cash.
