NoteSolutions.us

Introduction

By Robert Duplicki      December 9, 2024

Seller financing offers many alternatives which can be utilized to facilitate the sale of businesses, residential and commercial properties, land and other assets.

For some people at least one of the ideas I suggest below will be helpful now. If you are currently not ready to use any of these alternatives, someday one or more will work for you or someone you know.

All these ideas involve creating a promissory note of some type. And all those notes have the potential to be sold in whole or part at some time sooner or later. When you are ready to sell a note I will work to provide the best deal for you. Just submit a worksheet to NoteSolutions.us to get started.

Before considering the value of these ideas, it would be helpful to have an awareness of the advantages of seller financing for sellers and buyers which I have presented throughout NoteSolutions.us.

The ideas listed below will each have their own additional benefits which can vary somewhat for each seller and buyer.

Table Of Contents

1. Persistence

   One of the answers always is persistence. When will the owner of a property get motivated enough to agree to seller financing? If you are trying to buy a house, seller financing might be the only way you will afford one. So learn enough about seller financing in order to prepare a potential offer that will work for you. Then persist in your search. The same idea applies if you are looking for a commercial property or a business.

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2. Actually Get Agreement To Do Seller Financing

   A property seller willing to take a discount for all cash could take a discount by selling the note quickly instead. This requires that the note be created first. All the ideas presented here involve creating a secured promissory note as part of the paperwork. If seller financing is required for you as the buyer, you may need to show a seller that the note can be sold for cash.

   Whether you are the seller or the buyer, you can’t assume that the other person knows much about seller financing.

   The benefit of this idea for the seller is that they could get a better price through seller financing than dropping the price to get an all cash offer. It’s also likely to expedite the sale. For the buyer the benefit is actually making a purchase when they wouldn’t be able or desire to qualify for bank financing.

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3. Don't Let Bank No's Stop You

   Seller financing may work because it can meet the needs of the buyer and seller in ways that wouldn’t be available through bank financing. While this is a typical reason to use seller financing, my emphasis here is for you to get past the roadblock that you can’t do a deal because every bank that you talk to says no. You can find a way to make the numbers work for buyer and seller by using the flexibility of seller financing. Go ahead and use your imagination!

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4. Utilize All The Benefits Of Seller Financing In Your Negotiations

   Consider a list of benefits to buyer and seller in a transaction. What would you take for granted if you didn’t think about it this way? In a residential sale how important might peace of mind be to a seller who is moving out of town? For a commercial seller how important is it to fill a vacant building and eliminate insurance concerns? So think about all the benefits in your transactions and make them part of your negotiations.

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5. Utilize Private Money Together With Seller Financing

   Private money loans can provide another source of funds to be used in conjunction with seller financing. Private money could come from family, friends, business partners or other private sources that lend money individually or through larger organized providers.

   The idea here relates to the capital stack. The capital stack refers to the structure of all the capital invested in a property, including the different types of debt and equity and the relationship between lenders and investors in order of priority. Capital Stack: How It Works, What to Know

   

   The link offers helpful insights using the capital stack as it applies to larger properties. For smaller properties the capital stack could be composed of the buyer’s contribution or equity, seller financing and private money. Likewise seller financing can be used together with bank financing.

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6. Personal Property Can Be Used As Collateral For Seller Financing.

   Personal property includes any asset that is not real estate and is divided into two categories, tangible, and intangible. Tangible personal property includes physical objects. Intangible personal property are all other types of personal property that are not physical objects. Using Personal Property to Further Secure Your Real Estate Loan

   This idea has many applications. It can be used to seller finance homes, commercial property, businesses and many other assets. And many types of personal property can be used. Really anything of value that buyer and seller can agree on.

   The link above comes from an interesting article that discusses how a lender can use personal property for additional security beyond the real estate being loaned on. While the typical person offering seller financing doesn’t face bank regulations, the insights offered in that article will help you improve your risk analysis.

   Whether you are the buyer or the seller, talk to your counterpart about the alternatives available. Could you use an auto, boat, jewelry or equipment as collateral for real property or a business?

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7. You Can Sell The Note

   Keep in mind that the note can be sold at different times starting at closing and through whole or partial sales and through more than one sale. While the larger concern initially is buying or selling a particular asset, no one else might be talking about the benefits of selling the note.

   Other advisors may suggest seller financing. The possibility of selling the note, and doing so in different ways, adds another dimension to your deals. Here are a couple resources to help you:

   • Make Your Business Note Profitable

   • Real Estate Notes

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8. The Terms Of The Note Can Be Changed Later

   Changing the terms of the note later remains a possibility with privately held notes, that would be unlikely with bank financing. While this isn’t the goal when a note is created, it does continue the theme that seller financing offers a lot of flexibility.

   Since the seller is dealing directly with the buyer, this idea can add some confidence that if difficulties arise later, an agreement could be reached by amending the terms of the note.

   A similar concept applies if the note is sold. At that point all terms of the note stay the same. The only item that changes is who the payments are being made to.

   At a later date however, the new note holder and the note payor may find mutually beneficial reasons to amend the note.

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9. Create A Note That Reduces Your Risk And Makes The Note More Saleable

   Terms of a note that work to sell a property may be less attractive to a note buyer who is considering buying the note. But as the note seasons and payments are made on time, the note will become more attractive to note buyers.

   A property or business seller utilizing seller financing should be mindful of this point before finalizing the note terms. Looking ahead, how important is it to you to sell the note sooner than later, and to reduce the discount? The guidelines to create notes found elsewhere on this website should be considered to structure a quality note that reduces your risk.

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10. Subordination

    Subordination in seller financing refers to one lien such as a mortgage having priority over another. So a first mortgage has priority in the event of foreclosure over a second mortgage. Yet the equity remaining in a property is often used as collateral for additional financing.

    Another idea to consider as a property seller is that a buyer who qualifies in other ways, may not have cash for a down payment. So if they are able to qualify for private financing in first position, the seller can hold a second mortgage for the remainder of the purchase price. Of course this option needs to meet the seller’s needs and due diligence.

    For more information about subordination refer to my article The Pros And Cons Of Seller Financing - Part 2

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11. Loan Money To The Buyer

    I've stated previously that seller financing is referred to as a loan, but in common versions the seller does not actually loan money to the buyer. The seller finances the sale by accepting periodic payments for the asset which is sold.

    But there are versions of seller financing where the owner does loan money to the buyer. For example a buyer might not have a sufficient down payment to qualify for a bank mortgage. Yet this buyer does have sufficient income to make monthly payments for property A.

    This buyer also has equity in property B. The seller could loan money as a second mortgage on property B to be used as the down payment for property A. This example could work for residential or commercial property or a combination of both.

    Notice the distinction between this idea and the previous one. There the seller held a second mortgage on the property sold, which does not involve loaning money directly to the buyer. In this idea the seller of property A is loaning money to the buyer by taking a second mortgage and note on property B.

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Who do you know that you can help by suggesting one of these strategies, and letting them take action to make it happen?

12. Create The Financing And Find The Investor Interested In Your Deal

    Do you think that you could offer your properties directly to investors who wouldn’t be interested until you present them with a creative financing strategy that they love?

    There is an opportunity to expedite the sale and to target your offer using seller financing terms that are favorable to you and work for the investor. So create a winning offer and find the buyer who matches your criteria.

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13. Substitution Of Collateral

    Substitution of collateral is another idea that fits in more with investors. Substitution of collateral is transferring an existing mortgage from one property to another. This process tends to work more easily with seller financing than with banks.

    For example, you own property A that has seller financing in place. If you have an opportunity to sell the property, you may prefer not to pay off the seller financing. The holder of the mortgage may prefer to continue receiving payments than a full payoff.

    To use substitution of collateral you need to own another property with sufficient equity. Then as you are selling property A, you could move the seller held mortgage from property A to property B. This will give you more cash from the sale to use for other purposes.

    For more information about substitution of collateral, refer to my article The Pros And Cons Of Seller Financing - Part 2

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14. Use A Hard Money Loan Together With Seller Financing

    Hard money loans provide another source of funds that can be used together with seller financing. A hard money loan is a loan that typically has hard terms. These include high interest rates, short payback schedules and as a result higher payments.

    Hard money lenders can provide a missing piece of your financing puzzle. Their essence is more about the availability of capital than the cost of capital. Just like banks you will find varying sources of hard money.

    However the goal of hard money isn’t about finding an expensive source of funding. Hard money can fund one part of your overall capital stack, allowing you to close a deal. Depending on the source and your specific circumstances, hard money could be a first, second or third position loan.

    Here is an article How to Use Hard Money for Seller Financing Deals from a hard money lender, Private Money Utah. This will illustrate some of the possibilities. Of course more can be found.

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15. Simultaneous Closings

    A simultaneous closing can be viewed as a sale now rather than later. By simultaneous closing I am referring to the sale of a property using seller financing in which the note is sold at the same time or within a month thereafter. There are other definitions of simultaneous closing that can be used in conjunction.

    In the past this type of transaction could be done the same day. Now based on current financial regulations, buyers of such notes expect one payment to be made on the note before they will buy the note.

    The idea I’m suggesting is that rather than having the sale of your property delayed for months, use seller financing to expedite the sale. Then sell the note or part of the note as soon as one month later. This process is still referred to as a simultaneous closing by note buyers.

    Another option to expedite the sale of your property is to lower the price. But doing a simultaneous closing as described here gives you the chance to sell the property at a higher price by offering seller financing. After selling the note you can be further ahead financially in addition to selling your property faster.

    For more information about this concept go to Simultaneous Closings.

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16. Find What Works For You

    Seller financing will not be your best solution in all situations. So do your best to determine what works best for you. The more you learn about seller financing the more ways you will find to utilize it. Just like any other transaction proper due diligence is required and risk versus reward must be evaluated. Of course you should work with an attorlney, accountant and other advisors to complete such transactions. As a note broker I would love to do a great job providing cash for your notes.

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