Pitfalls of owner financing.

By
Real Estate Broker/Owner with (808) 226-1095 or (831) 626-4000 CA #01772851 HI #RB-21268

An investor client just sold a piece of vacant property to a couple who want to build on it. Since he is in first position, and intends to stay that way, I think he is doing well with that sale. He has some income every month, and the property will only increase in value if a home is built on it. I was his broker for the transaction.

However, this client handled an earlier sale of a 4-plex himself. It was owner financing, with the seller in first position. Not too long afterwards, the seller had to take it through foreclosure for non-payment.

What did he get back? A gutted 4-plex on which no repairs had been done. There were no tenants because it was not habitable. He had to put quite a bit of money into the building just to get it into a condition where he could rent it out. That included appliances that had been taken out.

This was a very expensive lesson for him. Maybe if he had used a REALTOR(R), he would have been guided through some pitfalls.

Some homeowners or commercial property owners, I understand, are considering owner financing as well. There are so many things to consider before agreeing to such a transaction:

1. Who makes sure the property taxes are paid.

2. Who makes sure there is enough insurance on the building.

3. Will the property be owner occupied or become a rental? If commercial, who will be the tenant, running the operation?

4. Repairs, keeping it in sound condition, inside and out.

5. Why does the buyer not get a loan? What is his financial background?

6. Stay in recorded first position.

THIS IS JUST A PARTIAL LIST OF WHAT TO CONSIDER.

 

Posted by

 

www.hellahawaii.com

Let me be your independent real estate broker for oceanfront and oceanview property in California and Hawaii.  If you are a seller/owner, I will travel to your property to help get it ready for sale, then list and market it. If you are a buyer, I will preview property on your behalf. Certain restrictions apply. Please call me to discuss how I can help you.

Search Hawaii Listings on www.HellaHawaii.com

Member: Honolulu Board of REALTORS, National Association of REALTORS, Hawaii Association of REALTORS, Del Norte Association of REALTORS, California Association of REALTORS.

 

________________________________________________________________

Hella Mitschke Rothwell (R)

Real Estate Broker/Owner/Realtor®
Licensed in California #01772851 & Hawaii #RB-21268

Tel. 808-226-1095 or 831-626-4000 

Fax 1-877-822-9332

www.HellaHawaii.com

www.HellaRothwell.com

www.93921.com

HAWAII OFFICE: 1128 Ala Napunani Street, #1809, Honolulu, HI 96818

 
CALIFORNIA OFFICE: Su Vecino Court, Lincoln & Dolores between 5th & 6th, Carmel-by-the-Sea, CA 93921

MAILING: P.O. Box 4554, Carmel-by-the-Sea, CA 93921

 
Email: HellaRothwell@gmail.com


            REALTOR LOGO      Equal Housing Logo

 

Disclaimer: Hella Rothwell does not guarantee nor is in any way responsible for the accuracy of the information provided herein, and provides said information without warranties of any kind, either expressed or implied.

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
ActiveRain Community
Tags:
pitfalls of owner financing

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainer
51,139
M. Lynn Delatte
Developers Realty - Broadview Heights, OH
People don't always think about the issues that can come up with owner financing. That is one situation where I would point out that a good real estate attorney might be a good investment, especially if the client did not have much experience.
Oct 20, 2012 03:58 PM #1
Rainmaker
575,953
Hella Mitschke Rothwell
(808) 226-1095 or (831) 626-4000
Hawaii & California Real Estate Broker

Lynn: Absolutely, and an accountant as well because there are pros and cons about the income and tax consequenses.

Oct 20, 2012 06:02 PM #2
Rainmaker
1,356,522
Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366
Dry Rot and Water Damage www.tromlerconstruction.com Mobile - 916-765-5366 - Placerville, CA
General Contractor, Dry Rot and Water Damage

Great information Hella. It would be easy to get caught up in the owner financing availabel and miss some important facts.

Oct 21, 2012 12:48 AM #3
Rainmaker
847,785
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
your real estate writer

Even with all the safeguards, it can go wrong - just as it can with bank financing. 

When I first got into real estate in the mid-80's seller financing was the norm. Interest rates were at 14-16%, banks wanted 20% down on conventional financing, and most of the houses for in our little town wouldn't qualify for FHA or VA. There were plenty of reasons why buyers weren't getting bank financing.

Oct 21, 2012 04:53 PM #4
Rainmaker
1,028,229
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

I have been taking back mortgages for many years. Usually they are interm, until credit or income changes. Over 90% of the time they have worked out very well. Owner financing is not for a novice, as you point out very well.

Oct 22, 2012 05:04 AM #5
Rainmaker
575,953
Hella Mitschke Rothwell
(808) 226-1095 or (831) 626-4000
Hawaii & California Real Estate Broker

Tom: Interesting times, indeed.

Marte: I remember those times in the early to mid-80's when interest rates were so high. In Hawaii where I lived at the time, "Agreements of Sale" were almost the norm. That usually gave you about 5 years to get your own financing.

Joe: Absolutely, you really need to check out the buyers. In today's market with people losing their home, their job, and their credit, you really take a chance.

 

Oct 22, 2012 12:14 PM #6
Post a Comment
Spam prevention
Show All Comments
Rainmaker
575,953

Hella Mitschke Rothwell

Hawaii & California Real Estate Broker
Ask me about listing or buying property in Hawaii & California.
*
*
*
Spam prevention

Additional Information