It seems that I have been painted into a corner with the sale of a condo that I own outright. It is in a 11 story mixed use building--- the top 4 floors consist of 33 condo units and the other 7 floors are various sized leased offices. Well, the ratio of owned properties to leased office space are now deemed too few to qualify for ANY mortgage to be written, a local credit union has since stopped the portfolio loans they did in house. I have spent days calling all the large/small banks in town with the same answer.." nope, the ratio is too low."
My condo has been listed for 3 months and we have had lots of interest but it disappears when a " cash only" sales is their only option. I am now twisting in the wind waiting for someone with 500K in cash to come along or perhaps offering to give some type of owner financing. I wanted closure with all this but am thinking that maybe the loan could be structured in a way to totally protect me and the money that would have gone into bonds/CDs. Perhaps demanding a 25-30% downpayment, short term loan, flawless credit scores from the buyers and have a real estate attorney write the loan contract.
Does anyone have any advice about what the pitfalls and concerns I should have before I go talk to the attorney ? Is it reasonable to take the Owner Financing risk with money that I do not need for 4 or 5 years or is this fraught with so many potential problems that I should be patient and wait for the cash buyer?
Owner Financing a Condo
Re: Owner Financing a Condo
First - you have the difficulty of the new purchasers agreeing to a short term loan.
You need to speak with an attorney with regard to legal issues.
One option: 1/3 down payment (to protect against purchaser just walking away)
with you financing a 10-15 year mortgage. While there may be purchasers who agree
to 4-5 year financing, they would probably extract a much lower price in the process.
Check to see what other owners have done recently (if there were other sales).
Are there "private brokers" who, at a somewhat higher rate, would provide a mortgage.
You need to speak with an attorney with regard to legal issues.
One option: 1/3 down payment (to protect against purchaser just walking away)
with you financing a 10-15 year mortgage. While there may be purchasers who agree
to 4-5 year financing, they would probably extract a much lower price in the process.
Check to see what other owners have done recently (if there were other sales).
Are there "private brokers" who, at a somewhat higher rate, would provide a mortgage.
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VgSince1982
- Posts: 136
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Re: Owner Financing a Condo
I believe the term is "hard money lender". You can do some research and perhaps line up someone willing to do this financing for your buyer.
Re: Owner Financing a Condo
The condo is paid off. You don't need the money for a while. You will get at least a 20% down. You will be collecting interest on the note. I don't see a problem carrying the loan for 5 to 10 years.
I wonder: If they can't get a loan now, why would they be able to later?
I would base the payment on a 30 year note at around 4%. You want the interest rate to be attractive to the buyer. And, there's no where you can make 4% on money. Of course, you want the buyer to be a good risk, but they don't necessarily need a flawless record.
You'll make more money carrying the note. And, more likely to get close to your asking price. If they don't make the payments, you'll get the condo back.
Of course, there may be issues if you have to take it back...but such is life.
I wonder: If they can't get a loan now, why would they be able to later?
I would base the payment on a 30 year note at around 4%. You want the interest rate to be attractive to the buyer. And, there's no where you can make 4% on money. Of course, you want the buyer to be a good risk, but they don't necessarily need a flawless record.
You'll make more money carrying the note. And, more likely to get close to your asking price. If they don't make the payments, you'll get the condo back.
Of course, there may be issues if you have to take it back...but such is life.
the best decision many times is the hardest to do
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technovelist
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Re: Owner Financing a Condo
If I were in that position, I would hold an absolute auction to get rid of the condo ASAP. I see no reason to believe that real estate prices are going to rise. I also don't see any reason that someone who could qualify for your preferred terms should buy from you rather than from someone else whose unit qualifies for normal mortgage terms, at least without demanding a severe discount for tying up their money.
In theory, theory and practice are identical. In practice, they often differ.
Re: Owner Financing a Condo
Have there been any sales in the building over the last 18 months? Are you planning to use a realtor?
If yes to the above, then I would interview realtors and explain the situation and that the listing would require more work than a usual sale. You could ask them to track down the previous sales and find out who, if anyone, lent on those condos. You could also tell them that the listing agent will be expected to hand potential buyers a packet of info that solves the financing issue, including a list of private lending sources and interest rates that have already been screened to assure they would lend on the condo. I would then ask the potential realtors to bring back a workplan for selling your condo for review that could be bound to accepting listing agreement. Realtors can be problem solvers and could add value to transaction. Having a solution before the issue is raised will put you in the best position possible.
Is there a relationship between the price of condo and income from workers on the lower 7 floors? If so, I would market them.
Finally, you will need to be prepared to sell for less than you would like.
If yes to the above, then I would interview realtors and explain the situation and that the listing would require more work than a usual sale. You could ask them to track down the previous sales and find out who, if anyone, lent on those condos. You could also tell them that the listing agent will be expected to hand potential buyers a packet of info that solves the financing issue, including a list of private lending sources and interest rates that have already been screened to assure they would lend on the condo. I would then ask the potential realtors to bring back a workplan for selling your condo for review that could be bound to accepting listing agreement. Realtors can be problem solvers and could add value to transaction. Having a solution before the issue is raised will put you in the best position possible.
Is there a relationship between the price of condo and income from workers on the lower 7 floors? If so, I would market them.
Finally, you will need to be prepared to sell for less than you would like.
I own the next hot stock- VTSAX
Re: Owner Financing a Condo
That situation certainly depresses the value of your condo. Aren't offices normally leased? The 33 condos are residences, correct? Is the issue the percentage of the condos owner occupied? I think I would determine the exact issue of the percentage of exactly what to what is the problem -- then try to fix it. It seems to me that, even if you finance a buyer, the market price you can get Is still depressed.NewBog21 wrote:It seems that I have been painted into a corner with the sale of a condo that I own outright. It is in a 11 story mixed use building--- the top 4 floors consist of 33 condo units and the other 7 floors are various sized leased offices. Well, the ratio of owned properties to leased office space are now deemed too few to qualify for ANY mortgage to be written, a local credit union has since stopped the portfolio loans they did in house. I have spent days calling all the large/small banks in town with the same answer.." nope, the ratio is too low."
My condo has been listed for 3 months and we have had lots of interest but it disappears when a " cash only" sales is their only option. I am now twisting in the wind waiting for someone with 500K in cash to come along or perhaps offering to give some type of owner financing. I wanted closure with all this but am thinking that maybe the loan could be structured in a way to totally protect me and the money that would have gone into bonds/CDs. Perhaps demanding a 25-30% downpayment, short term loan, flawless credit scores from the buyers and have a real estate attorney write the loan contract.
Does anyone have any advice about what the pitfalls and concerns I should have before I go talk to the attorney ? Is it reasonable to take the Owner Financing risk with money that I do not need for 4 or 5 years or is this fraught with so many potential problems that I should be patient and wait for the cash buyer?
Re: Owner Financing a Condo
Ignore!!!!! advice for an absolute auction. Horrible! Terrible!!!!!!!!! idea.NewBog21 wrote:\
My condo has been listed for 3 months and we have had lots of interest but it disappears when a " cash only" sales is their only option.
Perhaps demanding a 25-30% downpayment, short term loan, flawless credit scores from the buyers and have a real estate attorney write the loan contract.
Does anyone have any advice about what the pitfalls and concerns I should have before I go talk to the attorney ? Is it reasonable to take the Owner Financing risk with money that I do not need for 4 or 5 years or is this fraught with so many potential problems that I should be patient and wait for the cash buyer?
You have a lot of interest, therefore, you have an attractive property. ONLY....Three Months!!! on the market, PLUS, a lot of interest. All positive. Your problem is financing and you have the ability to do that yourself. So, what's the problem?
There is not a problem.
Qualify the buyer and carry the note for 5 to 10 years. You will make more money because you hold the mortgage and will make the interest payments. Interest in the first many years is the major portion of the loan.
If it were me I'd rather carry the note than sell it outright.
PLUS!!!!!! you will have a down payment.
At the end of the 5 to 10 year period, you might want to keep carrying the note and adjust the interest rate. Or, you might want the note paid off.
the best decision many times is the hardest to do
Re: Owner Financing a Condo
Dear Repliers,
Sorry for my rude lack of reply to your many helpful responses. I will not bore you with excuses.... For now we will let the place sit on the market and hope that some nice older couple will want to experience "mini-downtown" condo living. We have vacated and will leave it to the real estate agents...eventually it will sell or it will be our childrens' problem!
I think the best thing we have done is to buy another place where we can enjoy life far more as who knows how many hours we have left? Investing is good, amassing is important, but hoarding our nuts and fearing about the future can be stultifying!
Thanks for your input!
C
Sorry for my rude lack of reply to your many helpful responses. I will not bore you with excuses.... For now we will let the place sit on the market and hope that some nice older couple will want to experience "mini-downtown" condo living. We have vacated and will leave it to the real estate agents...eventually it will sell or it will be our childrens' problem!
I think the best thing we have done is to buy another place where we can enjoy life far more as who knows how many hours we have left? Investing is good, amassing is important, but hoarding our nuts and fearing about the future can be stultifying!
Thanks for your input!
C
Re: Owner Financing a Condo
This thread is now in the Personal Finance (Not Investing) forum (real estate financing).
(It should have been moved sooner.)
(It should have been moved sooner.)
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.Re: Owner Financing a Condo
I love closure and suspect others do too so I am posting a final update. We found new agents, "staged" the condo and got several offers, one of which involved owner financing...which we took with 30% down and balance at the end of one year. When the smoke cleared a year later we ended up with $45K less than we paid but were happy to depart Vancouver in a still depressed market, with more than enough to pay off the mortgage in our new place. What have we learned?
1. Homes are not necessarily investments...they are places to be.
2. It is better to not have an unnecessary mortgage in retirement.
3. Don't try to live in a condo until it is the only place you can be.
PS....the new home we bought in Florida has already appreciated 100K!
1. Homes are not necessarily investments...they are places to be.
2. It is better to not have an unnecessary mortgage in retirement.
3. Don't try to live in a condo until it is the only place you can be.
PS....the new home we bought in Florida has already appreciated 100K!
Re: Owner Financing a Condo
I have done many "hard money" loans and been very satisfied with the result. These were not "owner-financed" but the lessons are the same. Here's what I look for:
1. A hefty cash down payment, typically 30%+ of the purchase price.
2. A reliable source of income (i.e. a job) for the borrower, and not a ridiculous debt load aside from the loan they're getting from me.
3. An interest rate that compensates me fairly for the risk.
4. That the borrower will have all their payments done through a loan processor who will automatically take money from their account, put it into my account, and keep track of property taxes, insurance, etc. so it's totally passive income for me and totally brainless.
In my case, I live in Nevada, and our state is swarming with people who got over their heads on housing circa 2005 and did short sales. They generally wrecked their credit, but learned their lesson. By the time they come to me, they're wanting to buy a modest home, have saved up a bunch of cash, and are willing to pay interest in the ballpark of 9% - 10%. I just renewed one of these deals today that pays me 9.5% annual interest and where there's 60% equity in the property. The borrower was thrilled that I renewed, and I'm thinking "Where else can I get a well collateralized 9.5% return??"
If I were you, I'd advertise "Seller financing with 30% cash down payment." Don't advertise an interest rate. If someone with great credit shows up, offer 5% on a 10 year loan. If someone with lousy credit (but a decent job) shows up, offer 8.5% interest on a 10 year loan. Make sure to use an experienced real estate lawyer to write the docs and advise you of what to do in the event they stop paying.
1. A hefty cash down payment, typically 30%+ of the purchase price.
2. A reliable source of income (i.e. a job) for the borrower, and not a ridiculous debt load aside from the loan they're getting from me.
3. An interest rate that compensates me fairly for the risk.
4. That the borrower will have all their payments done through a loan processor who will automatically take money from their account, put it into my account, and keep track of property taxes, insurance, etc. so it's totally passive income for me and totally brainless.
In my case, I live in Nevada, and our state is swarming with people who got over their heads on housing circa 2005 and did short sales. They generally wrecked their credit, but learned their lesson. By the time they come to me, they're wanting to buy a modest home, have saved up a bunch of cash, and are willing to pay interest in the ballpark of 9% - 10%. I just renewed one of these deals today that pays me 9.5% annual interest and where there's 60% equity in the property. The borrower was thrilled that I renewed, and I'm thinking "Where else can I get a well collateralized 9.5% return??"
If I were you, I'd advertise "Seller financing with 30% cash down payment." Don't advertise an interest rate. If someone with great credit shows up, offer 5% on a 10 year loan. If someone with lousy credit (but a decent job) shows up, offer 8.5% interest on a 10 year loan. Make sure to use an experienced real estate lawyer to write the docs and advise you of what to do in the event they stop paying.
Re: Owner Financing a Condo
Just finished reading the other comments and realized my suggestion was years too late. Congrats on getting out of the home you no longer wanted.
Re: Owner Financing a Condo
Thanks for this wealth of info.....we did get a good rate....6%....and all worked out in the end but I doubt we will ever try at our age.....we just shouldn't be "dumb buyers" in the future...
That said, buying and financing real estate may be a better way to accumulate wealth for the young...we are way too old to accumulate and are merely trying to preserve....
That said, buying and financing real estate may be a better way to accumulate wealth for the young...we are way too old to accumulate and are merely trying to preserve....
RenoJay wrote:I have done many "hard money" loans and been very satisfied with the result. These were not "owner-financed" but the lessons are the same. Here's what I look for:
1. A hefty cash down payment, typically 30%+ of the purchase price.
2. A reliable source of income (i.e. a job) for the borrower, and not a ridiculous debt load aside from the loan they're getting from me.
3. An interest rate that compensates me fairly for the risk.
4. That the borrower will have all their payments done through a loan processor who will automatically take money from their account, put it into my account, and keep track of property taxes, insurance, etc. so it's totally passive income for me and totally brainless.
In my case, I live in Nevada, and our state is swarming with people who got over their heads on housing circa 2005 and did short sales. They generally wrecked their credit, but learned their lesson. By the time they come to me, they're wanting to buy a modest home, have saved up a bunch of cash, and are willing to pay interest in the ballpark of 9% - 10%. I just renewed one of these deals today that pays me 9.5% annual interest and where there's 60% equity in the property. The borrower was thrilled that I renewed, and I'm thinking "Where else can I get a well collateralized 9.5% return??"
If I were you, I'd advertise "Seller financing with 30% cash down payment." Don't advertise an interest rate. If someone with great credit shows up, offer 5% on a 10 year loan. If someone with lousy credit (but a decent job) shows up, offer 8.5% interest on a 10 year loan. Make sure to use an experienced real estate lawyer to write the docs and advise you of what to do in the event they stop paying.