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I'm interested in buying a duplex in my town. The seller wants to finance the sale himself. 15 year 5.5%, $10,000 (approx. 20%) down. I've run the numbers and the building makes good financial sense.
Are the risks higher, for me as a buyer?
Why would a seller want to do this?
Anyone have experience doing a buy or sell this way?
The risks are not higher for you as a buyer, but I would be sure to know what will happen if your seller dies. Ask a good real estate attorney, pay for an hours consult (at least) to go over your contract and ask questions and what-ifs. Can you cash him out at any time if you want to sell or refinance?
Are you sure it's a good deal for you? -Or might you get a better interest rate from a bank? Private contracts are usually a little higher interest than the banks.
The seller would want to do it to earn 5.5% interest on his money, steady income every month for 15 years. Sometimes that's preferable to a lump sum.
Have been involved in a few private contract sales, mostly on raw land, because financing is not available, but the principles are the same.
Thanks for the information. I haven't talked to the owner too much, we did a walk through of the building. I wanted to get a better grasp of the positives and negatives before I talked to him too much. I don't want to look like someone he can take advantage of.
We can get a loan from a bank for about 5.2% on a 15 year (using an equity loan), but I want to use that on a different building I am buying. I figured if the seller is willing to "loan" us the money, it's a good way to get a positive cash flow building pretty quick. My goal is to get 3-4 units over the next year.
I did it through the escrow company and an account servicing company that the buyer paid. My death would not have mattered, as the servicing company has the signed deed ready to give the buyer, once it is paid off. I charged 8% the first year, then it was going to 12%....the servicing company can take care of all that...late fees, tax escrow, insurance, rate changes.
In Florida, a Contract for Deed or an Agreement for Deed is an alternative means of owner financing. They used to be popular but have fallen out of favor. Unlike a traditional note and mortgage, an Agreement for Deed withholds the deed until full payment is received. However, in the event of default, the lender's remedy is foreclosure and not eviction.
Agreement for Deeds can lead to confusion not to mention many enter into the transaction not doing performing the proper title searches. You are much better off with a note and mortgage.
Getting financing from an owner, who has an existing loan could be a recipe for disaster. I would expect Title insurance and a warranty deed, deed of trust or not. Every state will have their own nuances. Arizona was quite simple...and easy to foreclose..about 1500. They sign what will happen if they don't pay, up front...nonjudicial foreclosure State. Newspaper announcement and then the courthouse steps. The buyer would get anything g over and above the mortgage and legal costs.
Contract for deed means you make the payments for the term of the contract, then you get title to the property. It means you don't legally own the property until the loan is paid off. There is no way I would ever buy a property on those terms. If the owner wants to finance the property, he should transfer title to you, then have a lien on the property.
There are a few people here who make money selling cheap lots with owner financing. When the buyer defaults, they take the land back and sell it again, pocketing any payments already made.
Contract for deed means you make the payments for the term of the contract, then you get title to the property. It means you don't legally own the property until the loan is paid off. There is no way I would ever buy a property on those terms. If the owner wants to finance the property, he should transfer title to you, then have a lien on the property.
How would one do that. I can talk to an attorney, but what exactly is the process of getting the title transferred to me first with a lien on the property.
The owner is 72 years old and honestly could pass anytime (but he is healthy and active) so getting the title in my hand or in a trust is important. He's owned the property for 25 years (I confirmed on the county website) and he's up to date on property taxes. He said there's no liens on it, and I don't know how to confirm that if there is any way possible. The reason he wants to owner finance is so he doesn't have to pay capital gains tax on a large lump sum. He has 5 properties he will be selling off over the next few years and he wants to do them all the same way. He's owned all the properties for 20+ years and they are all rented and well maintained. I may try to make a deal where I buy this one first and then buy the rest in a package.
I'm meeting with him tomorrow afternoon and it looks like I should ask him to put the properties in a holding trust?
EDIT: I want to add that the county said the properties are in his and his wife's name. So I assume that means they are not in a trust. The county website will say if it's owned by a trust because I found some.
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