Owner Financing Primer
In the current market many brokers are not making sales. However, I personally know some who are so busy they hardly have time to sleep. The busy ones understand owner financing and how to use it to close sales.
Suppose you have had your house on the market for $300,000. In past years you would have quickly found a buyer who would qualify for a new loan and cash you out. Now you have been making payments for months, perhaps you have lowered the price, and you still aren't getting any offers. That gets painful in a hurry.
What could a broker who understands seller financing do to improve this situation?
In the conventional situation the buyer is going to have to come up with 20% down, which is $60,000. Lots of potential buyers can't do that. If you were willing to accept $20,000 down at closing and carry a contract for the other $40,000 you would make your property available to many buyers who are locked out of the conventional market.
"I am not a bank, and don't want to be. Plus I need the money now." you say. A good broker can handle that. They will know investors who will buy that contract at a discount. Depending on the terms of the contract, an investor will probably pay $20-30,000 for a contract with a face value of $40,000. At closing the buyer shows up with their down payment and a new mortgage for 80% of the purchase price. The investors shows up with the money to buy the contract and the sale closes.
After the closing the sellers mortgage has been paid off and they have taken a $20,000 discount on the sale of the contract. They no longer have any exposure if problems develop with the buyer. The investor who bought the contract will have to deal with that. (That's why they demand a large discount.). In effect the seller has lowered their price by $20,000.
So, why not drop the price and avoid the messing around? Think about the purchase from the sellers side. If you drop the price to $280,000 they have to come up with $56,000 for the down payment which is essentially the same as the $60,000 originally required. In the owner financed situation they come up with $20,000. Your net after the sale is about the same in either case.
I can assure you there are lots more good buyers with $20,000 to put down than there are with $56,000.
So, how do you find a broker who knows how to use owner financing like this. (They are not common, are busy, and conventional brokers will talk them down.) Look though the paper for broker listed properties that are being offered with owner financing. Contact that broker and tell them you are considering owner financing instead of a price decrease to sell your house. Give them some numbers from your situation and ask them suggest how large a contract you should create and what the terms (Interest rate, number of payments) should be. Then ask them to tell you what one of their investors would pay for that note.
The good ones will know what yield their investors require, pull a financial calculator out of their pocket and give you a good, ballpark figure in less than a minute. If they don't already have investors "in their hip pocket" whose requirements they know, or they don't know how to use a financial calculator, end the call and keep looking until you find one who does.
A simpler quick screening approach would be to ask if they have a financial calculator. Ask them two questions:
1. If I create a contract for $10,000 at 10% APR with monthly payments for ten years, what is the monthly payment amount? The answer is $135.10 per month.
2. With that figured out, ask them how much an investor who requires an 18% return (yield) on their money would pay for the contract. The answer should be $8,667. If it takes more than a minute or two for them to give you the answers, you need to find someone else.
There are books written about owner financing so what I have provided above is only the most superficial overview. It may be painful to learn to deal with the complexity and potential risk of an owner financed transaction, but it's painful to sit on a house that won't sell and pray for lightning to strike too.