Owner Financing & Real Estate Notes: Misunderstood by Many

By Maria Fee

A GREAT INVESTMENT

Owner financing is not a sexy investment topic but it is probably one of the most amazing financial investments we can own. This creative financing technique works in good and bad markets and allows you to control property without the hassles, negotiations, and costs of ownership!

GREAT SALES TECHNIQUE AND ACQUISITION STRATEGY

Owner financing is widely misunderstood by sellers, realtors, and investors alike. People usually think of owner financing (seller financing) a property when they reach the point of desperation (a quick and easy way to get rid of a property). It is, in fact, probably one of the best financial investments you can own (don't conservative banks invest in mortgages)!

This strategy works for:

• Acquiring properties
  
• Selling difficult properties
  
• Selling a property quickly and greater than fair market value
  
• Financing borrowers who may not qualify for traditional bank loans.

MORE OPTIONS WITH NOTES

I like seller-financed real estate notes because it gives the seller more options! Unlike a lot of other real estate exit strategies, real estate notes offer these benefits:

• Hold the note and collect the interest through to maturity.
  
• Use the note to collateralize other investments.
• Sell the entire note for cash.
  
• Sell part of the note for cash.
  
• Most sellers don't realize that they can continue to profit from their property AFTER the sale!

OWNER FINANCING SOLVES PEOPLE AND PROPERTY PROBLEMS

Another reason this strategy is so powerful is that it works on all property types and for many types of buyers. The myth is that owner financing is only for the no-cash, bad credit buyers. The truth is so many people and many properties don't meet institutional lender standards.

Owner financing solves the following people and property problems:

People Problems Solved

• Are you self employed?
  
• Are you a student without much credit history?
  
• Do you have multiple real estate loans?
  
• Are you an active real estate investor whose income is primarily from rentals and leases?
  
• Do you spend more than approximately one-third of your monthly income on housing?
  
• Are you a non-resident alien living in the states?
  
• Do you or have you ever had any credit problems? Late payments? Unpaid medical bills?
  
• Do your credit card payments and car payments add up to more than approximately one third of your income?
  
• Have you ever had a bankruptcy or foreclosure on your credit history?

Property Problems Solved

• More land exists than improvements (e.g., house on 100 acres).
  
• Liens, easement, and judgments attached to property.
  
• Major repairs are needed on the property.
  
• Property has a specialized purpose (donut shop, church, school).
  
• Ownership in community is weighted towards investors rather than home owners (e.g., condo communities).
  
• Price is too low for an institutional lender.
  Zoning issues exist for the property.

DUE DILIGENCE IS A MUST FOR A SUCCESSFUL TRANSACTION

Most sellers and realtors are untrained on how to legally and financially structure a promissory note and the transaction for maximum value, reduced risk, and safety of all parties. With a "desperation" mindset, the seller often overlooks critical aspects of due diligence when evaluating buyers and properly preparing the transaction and parties for success. They often assume their transaction is safe, simply because it's secured by the property! Yes, they can get the property back, but in what condition?

Owner financing is all about due diligence on the front end of the transaction and accurate documentation - including evaluating buyers; adhering to regulatory/statutory ramifications in structuring the note; understanding your role as lender, collections, and administrator; as well as selling the note for cash later.

Because it is a financial transaction and we are in essence the "bank," common sense underwriting is crucial to the owner-financed transaction. The promissory note created in this transaction becomes a marketable commodity.

All rights reserved, used with permission. Maria Fee is a full-time real estate entrepreneur, author, and teacher. She is a licensed mortgage professional and note buyer. Maria has been a key note speaker locally, regionally, and internationally. She is President of REMI KNOX, LLC, a company that buys and sells notes nationwide. She is also the co-author of Owner Financing Made Easy which is available at www.REMIKNOX.com. Maria and her staff are reachable by calling 1-866-871-5914 and by email at Info@REMIKNOX.com. REMI KNOX provides free, no obligation note appraisals and other services to professionals and consumers.