EXAMPLE OF SELLERS ADVERTISING
EXAMPLE of AD PLACED IN LOCAL NEWSPAPER:
HAVE IT SOLD IN 1 MONTH or LESS
FOR SALE BY OWNER
SELLER CARRYBACK POSSIBLE
PAST CREDIT NOT A PROBLEM
Seller Advertises with Seller Financing MADE AVAILABLE, and by willingness to hold a note for a period of time.
Today’s economy seems to be doing better, but never rely only on newscast and print media for accurate information. Banks and Mortgage companies have implemented news rules and laws have taken place guiding it to make safer loans etc. When markets were tight only means that the days to be improving slightly, tight credit markets mean the days when you could simply walk into a bank , get a large check and be done with the sale of your small business or home purchase are long gone. Because of lending restrictions implemented after the 2008 recession by banks large and small, home purchases even the most enthusiastic buyers may not be able to find the money to finance a real estate sale. The owner or investor , there is nothing more frustrating than having listed a multi-family or single family unit for sale by owner that cannot be sold unless you either lower the sale price of the home or carry the mortgage loan yourself. When money is somewhat tight, seller financing seems more attractive than lowering the sale price of the property.
- Evaluate the Risk
A cash sale is an essentially risk-free transaction for the seller. Once the deal is done, you can comfortably walk away from the business with money in the bank. In a seller-financed transaction however, you continue to be tied to the business for several years after the sale is complete, until all purchase payments have been made. If the business succeeds, the new owner pays back the principal with interest and everyone wins. But if the new owner struggles and can’t make the loan payments, you could suffer the loss of interest income and incur additional costs to collect the debt. In the worst case, the new owner can’t make the payments and you get the business back through the loan default; something nobody wants to have happen. The bottom line is that an owner-financed sale needs to be evaluated as a business investment. Like any other investment, it carries with it a certain amount of risk. If you are comfortable enough to invest in the new owner, then it can be beneficial to finance the sale yourself. However, if you aren’t confident the buyer can make the business a success, you’ll want to think twice before offering financing as an enticement to close the deal.
- Advertise Your Willingness to Finance
Some sellers are hesitant to advertise a financing this option because they aren’t totally sold on the idea and view it solely as a last resort. The truth is that if you aren’t comfortable with the idea of financing, you shouldn’t consider it as an option at all. If you are, though, it is important to include the information as a selling point in your marketing efforts. One of the most productive venues for advertising a seller-financed company is online. Seller financing has become so common it has become another way of doing business. Buyers can also search exclusively for businesses that are at least partly seller-financed. These details now appear prominently alongside other essential information such as business description, location, asking price and cash flow. Remember that as a business seller, you are competing with other similar local businesses for a potential buyers’ attention. If other businesses for sale in your area and industry are offering seller financing, and you are not, then you are going to be at a disadvantage in attracting qualified business buyers.
- Low risk investment consideration
- If you as the seller do evaluate that the buyer is a low-risk investment, you stand to benefit greatly by financing a portion of the transaction. Too many sellers view financing as a desperate last attempt to unload the business when they should be viewing it as a resource for enhancing the benefits of the sale. From the start, your willingness to hold paper increases the final selling price of the business. We have found that partially-financed sales typically result in a price that is more than 15 percent higher than their cash sale, more than compensating the seller for the assumed risk and opportunity cost of financing. That means you can leverage your willingness to finance as a bargaining tool during negotiations. In addition, financing the sale provides the opportunity to multiply the principal value of a business through future interest payments from the buyer. A financed sale can garner a higher rate of return than many other investment vehicles, as it often involves a five to seven year note at 8 to 10 percent interest as the norm. Professional advice required before closing
On the surface, an owner-financed sale might seem mostly like a do-it-yourself transaction. Instead of relying on professional lenders for financing, you assume the responsibility for a percentage of the buyer’s investment. It’s important not to get too caught up in the do-it-yourself mentality, though. A loan between a seller and a buyer is subject to limitless structures and variations, many of which require the input of professionals in order to secure airtight collateral, coherent loan terms and adequate insurance coverage. Before you agree to financing, obtain legal and financial advice from a professional you trust. In addition, taking part of the purchase price for your small business in the form of a loan can have tax advantages that should be well understood and reviewed by a trusted tax professional. Down Payment required or other valuable consideration
- Never do a transaction without the down payment, No downpayment makes it to easy for a buyer to walk away from the deal if he/she encounters problems down the road.
UNDERSTANDING A MORTGAGE NOTE
This section is added to help understand how and why a deal a deal is put together and what make it work or not work. This includes knowing how real estate is financed, how and why privately held mortgages also known as “paper” and trust deeds come into existence. Let me introduce the players who are part of our hypothetical deal. First meet Mary, Mary has a piece of real estate she wants to sell. Next is Art. He wants to buy Jane’s real estate. Jane’s real estate is a single-family home, which she is selling for $130,000. Art has agreed to purchase it at that price. He has $50,000 cash to use as a down payment. He needs to finance an additional $80,000 in order to buy the house. Mary owns the house outright, free and clear. There are no liens or back taxes against the property. This means Mary will have $130,000 cash out of the deal, less here closing costs. I’m assuming, to make this transaction simple, that Jane owns the house free and clear. You don’t have to have a transaction free of other debt. In most cases you won’t be dealing with free-and-clear property, but to make the numbers simple, lets make it free and clear. Art needs to borrow $80,000 to make this deal work. Where does he go for the money? More often than not,Bob will go to a bank for his loan to purchase Mary’s house. And why not? That’s what banks are for; that’s what everyone else does. Bob sits down with the banker, describes the property, and explains how much down payment he has. The banker does a little figuring and tells Bob his payment on a fixed-rate loan of $80,000 will be $775.00 a month for the next thirty years, assuming the property appraises okay and he qualifies for the loan. Before the bank agrees to lend Art the money, it checks him out and approves or disapproves his loan. This normally take anywhere from four to eight weeks. The bank goes through Bob’s financial life with a fine-toothed comb. It wants to be very sure Bob has the means to actually repay the money. The bank will ask for a net-worth, two years of tax returns, a credit report, verification of employment, etc. The process takes a long time. The bank does not want to lend money to just anyone, especially someone who has bad credit or little net worth. The bank also wants to make sure Art has enough money, somewhere, for the down payment. That’s why banks are very careful, take a lot of time, and, as you know if you’ve ever bought a piece of property, are always asking for one more piece of documentation about something or other as the loan gets close to funding. The bank also checks out the property itself. They have an appraisal on the property to learn whether the true value of the property supports the loan Bob is requesting. They also do a title report on the property. The title report tells them what other liens, if any, are against the property, what positions those liens hold (whether first, second, or third mortgages, for example) and whether property taxes have been paid. If there are taxes or outstanding liens when Art buys the property, then at closing those taxes and liens must be paid off. so that the bank has first position. The title report also reveals whether Jane holds a clear title, whether there are any covenants, conditions, and restrictions on the deed, and whether there are any easements on the property, among other information vital to determining the value of the property that will secure the bank’s loan. The bank will be very happy with Bob’s $50,000 down payment provided the appraiser confirms the accuracy of the selling price. But it also wants to be sure Bob has an income/debt ratio that will allow him to make the payments. Finally the bank calls Bob and tells him his loan has been approved and the banker goes over the details with Bob one more time. A date is then set for closing. At the closing, in mortgages states, Mary, Bob and their attorneys, and a representative of the bank sit around a large table to review the documents and sign the papers that transfer ownership of title to the property from Mary to Bob. Mary’s When the closing is completed, Mary has $130,000 cash to use as she pleases. Art owns the house and has signed a mortgage and promissory note. This is a legal promise to pay back the money. In this document all the terms are stated, such as interest rate, monthly payment, amount borrowed, as well as the parties’ names and addresses, and of course the address and legal description of the property. Bob signs this document at closing and the bank puts it in a safe place. The promissory note is like a check worth $80,000 plus interest, payable at $775. a month for thirty years. The note is combined with another legal document called the mortgage or trust deed, which is recorded—placed on public record—at the county recorder’s office. It spells out, in detail, what Bob has agreed to. It also includes the legal description of the real estate Bob has purchased—the collateral the bank uses to secure the loan—listing the lot and block number of the property. It details what will happen if Art doesn’t make his payments. The mortgage document is a contract between Bob and the bank. It’s fairly standard all across the United States and Canada. In a number of states, mostly in the West, this contract is called a trust deed. A trust deed serves the same purpose as a mortgage. It, too, has a promissory note associated with it, but instead of two parties (Art and the bank) there are three parties, Art, the bank, and a neutral third party, the trustee. The trustee is an independent person or company who hold the legal documents in trust for Art and the bank. When the closing is completed, Jane has her $130,000 cash, Art has the property, and the bank has the mortgage or trust deed and the promissory note. To learn the basics of how to create paper.