Note Queen: Owner Financing Strategies

The majority of my note deals come from people who 'find' or 'broker' them to me. Most are very capable and add a lot of value to the transaction, but some are newer and lack industry knowledge, people skills or both.

On this particular deal, the note finder almost lost us the deal so I asked if I could get involved directly after which we made quick progress.

He still got paid, but less than what he was trying for... and that's appropriate.

Note sellers out there can be very desperate for a solution they can count on. I always try to keep the seller's need in mind and meet them as best as I can.

Raul describes a commercial deal where he got below market terms (seller financing) from a seller.

They were happy to do this because he paid full price and he cut them in on the upside.

The project was going to do very well because of the benefits provided in the Big Beautiful Bill to stimulate manufacturing.

Everyone wins!

Master leasing can be a great alternative to 'subject to'... a lot less resistance from sellers who still have a loan in place.

The lender's title policy is the thing that a lot of people miss when they are carrying paper (offering seller financing) to a buyer.

Many title companies mistakenly advise that because it's owner financing that a lender's title policy is not needed.

It may not be if the property-seller-turned-note-holder never ends up selling the note.

But if they ever need or want to sell it, the note buyer / investor is going to want to see a lender's title policy.

If it wasn't purchased at the time of the real estate closing through which the note was created (when it was cheap), then it will often have to be bought by the note holder after the fact (when it's much more expensive).

While title companies, attorneys and real estate brokers can *usually walk their clients through a seller financed transaction adequately, they have NO IDEA what the note will be worth on the 'secondary market' to those private Fannie Mae's and Freddie Mac's who want to buy it, nor do they ever seem to tell their client that there even IS a secondary market.

They don't tell them that they'll start receiving letters and postcards in the mail within weeks of closing... postcards and letters asking them if they want to sell their note. So they'll be surprised and confused...

'Wait, what?? That's a thing??"

By then, the value of the note is the value of the note.

There is no going back in time to structure the terms that would fetch the highest possible price.

I've seen notes I couldn't buy at ANY price because of critical errors in the paperwork.

Tired landlords... do you want to keep or sell? Either way you can get out of managing your rentals.

If you sell to a buyer over time using the "Installment Sale"... it's in the tax code (IRC 453), you'll get a lot more for your property, and your monthly income will increase.

But if you're not ready to sell, then there are property managers, of course, but also people who will create a Master Lease agreement with you, and this has its advantages... the terms can be much more flexible.

99% of sellers who end up 'offering terms', 'carrying back paper', offering seller financing have NO IDEA that there are people who would want to buy the note they just created... that promissory note represents a stream of income, like an annuity.

Only it's a private annuity that someone creates that is secured by the property they just sold. And investors like to buy income streams.

I want to be the prenatal care, the midwife for these seller financed transactions. That way the seller is assured that the note will be worth holding or selling.

Sadly, they won't be educated by their attorney, title company or real estate broker.

They find out a few weeks after the closing when they start receiving letters and postcards in the mail.

Seller won't give you a discount on the price of the property? Here's the back door way to get it anyway.

If you get 0% interest, it's the equivalent of paying .65 cents on the dollar.

Seller gets their price, you get your terms.

There ARE sellers out their who accept 0% financing every day. Everyone has their reasons and what's important to them.

It absolutely thrashes the value of the note on the secondary market, but the seller got the price they wanted and the monthly cash flow that worked for them.

The process of closing a seller financed transaction is often misunderstood.

Do you need a special seller finance broker? A special escrow / title / closing attorney?

It is sometimes easy to assume that if a buyer isn't getting a bank loan or paying all cash, that the closing process is radically different.

Yes, there are some important considerations unique to a seller financed transaction, but it is closed the same way, through the same professionals as any other transaction.

The primary difference is that there is no 3rd party lender / bank.

The seller is the bank, so the seller's name is on the promissory note and deed of trust or mortgage.

Do you need a special real estate broker?

Very possibly, yes... because an agent who doesn't understand it and isn't open to collaborating with a seasoned note professional can be a deal killer...

They can be such a great gatekeeper that you as the seller don't even see all offers that are (or would be) submitted.

I can help you find an agent in your area that understands owner financing and who would be open to working with me ... your Personal Fannie Mae Underwriter ;-)

Bring your questions to tomorrow's zoom!!