Property Management Agreement (image: c-rem.com)
Despite the price increase in most markets, the credit is still tight for investment property purchases. So, if you are interested in selling your rental properties in San Jose, Campbell, Los Gatos, Saratoga, Los Altos then you might consider seller financing to ease the challenge some buyers have with their loan approval.
This method would increase your pool of potential buyers if you finance the sale yourself. This requires willingness on your part to be flexible which can create a win-win situation for both principles.
With seller financing you forego collecting all of your cash at closing and instead put the buyer on a payment plan. There is a great deal of flexibility with payment options, depending on your and the buyer’s needs:
- The down payment can small.
- Buyers usually pays a monthly fee for the 2nd lien you have on the property for a specified term with a balloon payment due on or before a certain date.
- Buyers can send payments to you directly, but it might be wiser to have the payments managed through a title/escrow company which tracks payments and interest. The title company can record the ownership transfer once your loan has been fully paid off by the Buyers.
- You can charge a higher interest rate but be careful not to violate your state’s usury laws.
There are typically two typical options to implement a seller to financing plan for a real estate deal. One option is for the buyer to agree on a promissory note (detailing the repayment terms) and a Deed of Trust is recorded. The second option is for both parties to enter into a Real Estate Contract (or land contract) which is recorded.
A key distinction between these two options is that with a Note and deed of trust and title to the property transfers to the buyer. But with a real estate contract, the seller retains title until the property is fully paid for. A real estate contract is the preferred option if you are concerned about a potential default where the Buyers might not make the payments on teh loan. WIth the Land Contract in place, there is no need for you to foreclose since you are still on title.
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