seller financing presentation- davies company real estate
DESCRIPTION
Presentation about seller financing as given on 5-15-12 at Cal Poly State University in San Luis Obispo, Calif.TRANSCRIPT
Know anyone who has completed a seller-finance
transaction?
In SLO County, as reported to our Multiple Listing Service, over past 6 years, only 6.5% of
sales involved likely seller financing.
Copyright © 2012 Davies Company Real Estate
Seller Financing
Definition
When the seller of a property accepts a
note and trust deed as part of the
purchase price. The buyer owes the
seller the amount specified in the note.
Seller Financing Players
Buyer
Seller
Escrow
Real Estate Broker
The Deal Example
Seller has no loan on the property (free & clear title).
Buyer wants property
Buyer’s loan options are limited or undesireable
Buyer has resources to pay payments (income)
Seller prefers or will accept payments instead of the full
purchase price
Buyer makes promise to pay, seller accepts
Sale closes escrow
Buyer makes payments
Seller Financing Math
Example
The Variables:
$500,000 Property Value
$100,000 Buyer’s downpayment
$400,000 Seller Carries Back Financing
$40,000 Estimated Closing costs paid by seller (8%)
$60,000 Net cash to seller at closing + Buyer’s
promise to pay the balance of $400,000.
The Seller
The Seller …to payment
collector! From property
owner…
Benefits to Seller
Income Taxes
Return on Investment
More Buyers
Faster Transaction Closing with Less
Decision-Makers
Note and Trust deed are Marketable
Structure Customized to Their Situation
Seller Considerations Include:
• Do we want to risk owning this property again?
• Do we have confidence that our loan is well-secured?
• What kind of interest rate can we get on our cash in the bank?
• Credibility of the Buyer?
• What would we do with the cash proceeds from the sale, anyway?
• Could we use a monthly payment?
• How long are we willing to wait for the proceeds?
• What are credit, legal, and tax implications of our decision?
Should Some Sellers Avoid
Seller Financing? Yes
If you have no equity or are
pursuing a short sale If you need the cash immediately
from the sale
The Buyer
The Buyer
…to homeowners! From renters…
Benefits to Buyer?
All Terms Are Negotiable
Credit Score is Less Important
Down Payment Flexible
Can Use Other Collateral
No Cosigner Needed
Terms Can be Renegotiated
Closing Cost Savings
Property Value More Important Than Buyer’s Qualifications
The Escrow
Company
The Escrow Players
Private Escrow
Companies, too.
What documents are
required?
Note (Detailed terms of repayment)
Trustdeed (recorded in public domain at County Clerk Recorder’s Office)
Reconveyance (when loan is paid off)
Purchase Contract & Escrow Instructions
Amortization Schedule for Payments
The Note
The Trust Deed
The Reconveyance
The Real Estate
Broker
Real Estate Broker Reality
Listing broker must be director with the strategy,
and monitor information to parties.
Manage buyer expectations- if buyer’s agent
Manage seller expectations- if seller’s agent
Become educated in seller financing matters and
benefits to the parties
Expect transactions with inexperienced agents
Have professional resources to refer to, like
CPAs and attorneys, and trust deed buyers
In my experience, over 85% of active
agents have never participated in a seller
financing transaction.
Real Estate Brokers (Insider Secret)
The Real Estate Broker as seen by Buyer & Seller at Successful
Close of Escrow in a Seller Finance
Transaction
Davies Top 5 Tips
for Seller Financing
Or how to be a smart investor, with any kind of transaction, including seller
financing.
Copyright © 2012 Davies Company Real Estate
Tip #1
Anticipate the fears of all
parties
Tip #2 Know the math
What does the seller need to make the transaction be acceptable & lowest-risk
to them?
Tip #3 Be responsive to the other
party, keep calm
Tip #4 The Terms of the Seller Financing
Can Increase the Benefits in
Transaction to Both Parties
You can create more opportunity and
more value in your property by offering
seller financing.
Tip #5 Buy real estate.
And use what you have to get what you
want.
DaviesCo.com
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