Seller Financing Presentation- Davies Company Real Estate

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Presentation about seller financing as given on 5-15-12 at Cal Poly State University in San Luis Obispo, Calif.

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Seller Financing Presentation- Davies Company Real Estate

  1. 1. Know anyone who has completed a seller-finance transaction? In SLO County, as reported to our MultipleListing Service, over past 6 years, only 6.5% of sales involved likely seller financing. Copyright © 2012 Davies Company Real Estate
  2. 2. Seller Financing DefinitionWhen the seller of a property accepts a note and trust deed as part of the purchase price. The buyer owes theseller the amount specified in the note.
  3. 3. Seller Financing PlayersBuyerSellerEscrowReal Estate Broker
  4. 4. The Deal ExampleSeller has no loan on the property (free & clear title).Buyer wants propertyBuyer’s loan options are limited or undesireableBuyer has resources to pay payments (income)Seller prefers or will accept payments instead of the full purchase priceBuyer makes promise to pay, seller acceptsSale closes escrowBuyer makes payments
  5. 5. Seller Financing Math ExampleThe Variables:$500,000 Property Value$100,000 Buyer’s downpayment$400,000 Seller Carries Back Financing$40,000 Estimated Closing costs paid by seller (8%)$60,000 Net cash to seller at closing + Buyer’s promise to pay the balance of $400,000.
  6. 6. The Seller
  7. 7. The SellerFrom property …to paymentowner… collector!
  8. 8. Benefits to Seller Income Taxes Return on Investment More Buyers Faster Transaction Closing with Less Decision-Makers Note and Trust deed are Marketable Structure Customized to Their Situation
  9. 9. Seller ConsiderationsInclude:• Do we want to risk owning this property again?• Do we have confidence that our loan is well-secured?• What kind of interest rate can we get on our cash in the bank?• Credibility of the Buyer?• What would we do with the cash proceeds from the sale, anyway?• Could we use a monthly payment?• How long are we willing to wait for the proceeds?• What are credit, legal, and tax implications of our decision?
  10. 10. Should Some Sellers Avoid Seller Financing? YesIf you have no equity or are pursuing a short sale If you need the cash immediately from the sale
  11. 11. The Buyer
  12. 12. The BuyerFrom renters… …to homeowners!
  13. 13. Benefits to Buyer?All Terms Are NegotiableCredit Score is Less ImportantDown Payment FlexibleCan Use Other CollateralNo Cosigner NeededTerms Can be RenegotiatedClosing Cost SavingsProperty Value More Important Than Buyer’s Qualifications
  14. 14. The Escrow Company
  15. 15. The Escrow Players Private Escrow Companies, too.
  16. 16. What documents are required?Note (Detailed terms of repayment)Trustdeed (recorded in public domain at County Clerk Recorder’s Office)Reconveyance (when loan is paid off)Purchase Contract & Escrow InstructionsAmortization Schedule for Payments
  17. 17. The Note
  18. 18. The Trust Deed
  19. 19. The Reconveyance
  20. 20. The Real Estate Broker
  21. 21. Real Estate Broker RealityListing broker must be director with the strategy, and monitor information to parties.Manage buyer expectations- if buyer’s agentManage seller expectations- if seller’s agentBecome educated in seller financing matters and benefits to the partiesExpect transactions with inexperienced agentsHave professional resources to refer to, like CPAs and attorneys, and trust deed buyers
  22. 22. Real Estate Brokers (Insider Secret) In my experience, over 85% of activeagents have never participated in a seller financing transaction.
  23. 23. The Real Estate Brokeras seen by Buyer & Seller at Successful Close of Escrow in a Seller Finance Transaction
  24. 24. Davies Top 5 Tipsfor Seller FinancingOr how to be a smart investor, with any kind of transaction, including seller financing. Copyright © 2012 Davies Company Real Estate
  25. 25. Tip #1Anticipate the fears of all parties
  26. 26. Tip #2 Know the math What does the seller need to make thetransaction be acceptable & lowest-risk to them?
  27. 27. Tip #3Be responsive to the other party, keep calm
  28. 28. Tip #4The Terms of the Seller Financing Can Increase the Benefits in Transaction to Both Parties You can create more opportunity and more value in your property by offering seller financing.
  29. 29. Tip #5 Buy real estate.And use what you have to get what you want.
  30. 30. DaviesCo.comtwitter.com @dawnadavieslinkedin.com/in/dawnadaviesfacebook.com/dawna.daviesslideshare.net/DawnaDavies

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