Selling your home or other real estate property is a big decision. While
offering owner financing can make selling your property much quicker and easier,
there are a number of pitfalls you will want to avoid.
When creating a cash flow note, whether it is in the form of a mortgage or
trust deed, the main objective is to create a low risk investment. By doing so,
you:
- Create a solid investment for yourself, with very little risk of
default.
- Create a liquid investment which you can convert to cash, if necessary.
The three most common mistakes made when creating a cash flow note are:
- Bad credit
- A poor appraisal of the property
- Clouded property title
Bad Credit: Finding the right buyer for your property involves much
more than simply finding a person who loves your home. Before entering any
agreements, you need to obtain a credit history on all parties involved.
Many people are concerned about whether they have the right to request credit
information, under the federal laws. Because you are effectively loaning money
to the potential buyer, you absolutely have the right to request access to their
credit information. You should require a completed credit application from any
potential buyer. This application should include permission from the potential
buyer to pull their credit report.
If a potential buyer does not want to give you information about their
credit, then decline to offer any owner financing to that person.
Once you have obtained the credit report, examine it thoroughly. The credit
rating is important, but you should also look at the rest of the information
available. In particular, look for any reports of defaults, late payments, etc.
on the credit report. Look at the amount of income as well. You need to be
comfortable that your buyer is willing and able to make the payments on your
property every month.
Poor Appraisal Of Property: The property should be appraised at or
near the sale price. If the sale price is higher than the appraised value of the
property, this can create problems in the event of a default. You may actually
end up losing money on the deal if you need to foreclose on the note and resell
the property.
An appraisal value which is less than the balance due on the note will also
significantly reduce the value of your note.
You will also want to be able to monitor the property periodically after the
sale. Making certain that the property is kept in good condition will allow you
to make sure that the property retains its value. In the event that foreclosure
becomes necessary, it is very frustrating to find a property that needs numerous
repairs before it can be resold.
Clouded Property Title: A clouded property title means that ownership
of the title is unclear. A clouded property title may result from
a previous lien on the
property that was never satisfied, association liens, mechanics liens, or
delinquent property taxes. It is also possible that the chain of title is out of
order. Whatever the cause, you should correct the problem before the property
sale.
A clouded property title, if
discovered during the negotiation process, may weaken your bargaining position,
or even be a reason for not completing the sale. If discovered after the sale of
the property, a clouded title will lower the value of your note.
If you are thinking of selling
your property and are considering offering owner financing, we urge you to
contact
First Class Cash Flow Handlers for more information. We also recommend the
manual "How
To Sell Your Home Fast In Good Or Bad Markets". This manual will walk you
through the process of selling your home with owner financing step-by-step.
