Most people who sell a property and carry a note do a really good job. But, as in any business, there are some folks who just “shoot themselves in the foot.” How? They make some crucial mistakes. So, DON’T DO the following:
- You Don’t Know Your Buyer. You are selling a property and decide not to use a real estate agent. You may not actually meet with your buyer. You do not know his credit history or worthiness. You think you know what he does for a living, but you do not know who his employer is, and thus you have not talked to his employer. You are not certain if his current income can easily support his debt structure and the note payment. you don’t know what kind of car he drives. You don’t know his marital status. You don’t know who will be living with him or what their relationship is. You have agreed to stay tied financially to this person for 10-20-30 years and you know little about him. You are shooting yourself in the foot!
- You Get Little Or No Down Payment. You are so anxious to sell your property you agree to accept little or NO cash down payment. The most important element of an Owner Carry transaction is Protective Equity for the seller. Ask for 20%, maybe you will get it. If not, negotiate for the most cash you can get.
- You Agree To A Balloon Payment. Balloon payments are common in commercial property sales, but not residential sales. If your buyer cannot get a mortgage loan – for whatever reason – how will he come up with the balloon payment when due? If you have made financial decisions based upon receipt of this payment, what will you do? Renegotiate? Foreclose? Extend? Is your life upended? Best bet is to avoid a balloon payment if you are selling a single family residence.
- You Agree To An Interest Only Note. No, get principal payments. you want commitment. If you think you can sell your note, you will find “little interest” in your “interest only” note.
- You Agree To A Below Market Interest Rate. Interest rates fluctuate over time. Yet, some sellers will agree to an interest rate as low as 0% with “family members” or people they barely know. The interest rate should be commensurate with the risk. 1-3% above current market rates is reasonable.
