Seller Financing For Second Homes and Investment Properties

Tara Mastroeni
Published: December 29, 2016 | Updated: December 10, 2021

owner financed mortgage notes

Many seller financing agreements are for properties that serve as a primary residence or place of business. But owner financed mortgage notes can also be used for the sale of second homes and investment properties.

Let’s examine three ways that owner financed mortgage notes for these two types of properties benefit sellers:

  • selling property out of season
  • selling based on the future financial position of the buyer
  • selling based on the buyer’s future investment income.

1. Selling Property Out of Season

An experienced realtor might tell you there’s no season in which properties don’t sell, which is true. However, many prospective buyers in the northern, midwestern, and eastern U.S. tend to favor investing in property during the second and third fiscal quarters. This has less to do with buyers’ finances and more to do with the logistical nightmare of traveling to view properties during inclement weather in late Fall and Winter.

Owner-financed mortgage notes also remove traditional lenders from the sales equation. This leads to less adherence to common requirements for receiving financing and can serve as an additional incentive for potential buyers to make a move, regardless of season.

owner financed mortgage notes

2. Selling Based on Future Financial Position

Let’s say that a prospective buyer of a seven-figure second home earned about $50,000 a year, but he had recently won a major lottery, and was set to rake in $4 million net in three months. How would lenders view him?

Large, institutional lenders care more about birds in the hand than birds in the bush. However, small originators of owner financed mortgage notes don’t always need to play by this prudent rule. Naturally, you’d want proof the future funds would arrive (other than the word of the home buyer/borrower). Once you got proof in hand, from a third-party entity, you could issue a loan quickly, without having to kick it around to different departments or make considerations solely based on shareholders’ needs.

If you do plan to go down this road in a similar situation surrounding owner financing, be sure to always verify what the buyer/borrower is representing to you during the negotiations of the home sale. Never take their word for it!

owner financed mortgage notes

3. Selling Based on Future Investment Income

This benefit applies to properties that generate lease income. If you own an investment property whose lucrative lease won’t end anytime soon (e.g., a triple net property that’s 1 year into a 25-year contract), you can assume the buyer can afford the mortgage based on income the property will generate going forward.

Perplexingly, someone who seems like a sure bet to pay the lease can prevent the deal if they currently lack credentials. It doesn’t make good business sense to confident investors, and it’s an obstacle that can be circumnavigated using owner financed mortgage notes. Either way, always be sure to draw up an “Assignment of Rent’s” clause or document in a circumstance such as this one. Assignment of Rents allow the lender to assume the rent payments in the case the borrower defaults on the loan obligations.

Selling Owner Financed Mortgage Notes

If you pursue seller financing when purchasing a second home or investment property and find yourself in the need of selling real estate notes for a lump sum, you always have options. At Amerinote Xchange, we believe we have the best strategies to maximize your investment’s potential.

We make strong offers for mortgage notes, mortgage loan portfolios, business notes, and other debt instruments purchased and traded on the secondary loan market. To receive a free quote for your mortgage note, give us a call today at (800) 698-3650, or use our contact form. We look forward to learning about your plans and assisting you with your note.