With inflated prices on SFRs, the next opportunity for investors can be carrying notes for buyers with less than stellar credit. Most investors can command between 10% and 15% depending on credit and employment history of the buyer. We come across these opportunities on a regular basis and we pitch the buyer on our newsletter. If you don’t already have a subscription, Sign Up to Our Distribution List Here
What protects me from losing my money?
Just like a bank, you have a lien on the property. That property can’t be sold out from underneath you. If the buyer defaults, you get the property back.
What determines the interest rate?
These rates are negotiable and determined by the market. If you are demanding 15% and another guy is offering 10%, well you won’t be making any money.
What is a typical term?
Most “Owner Carry” notes are for 5 years or less with a balloon payment at the end of 5 years. There are dozens of financial scenarios but we typically build it around the needs of the buyer. At the end of the five years, the buyer generally has sufficient income and equity to get a traditional 30 year loan.
What happens if the buyer defaults?
The foreclosure process is a little more cumbersome than an eviction from a standard lease. Therefore you want to make sure the buyer has a lot of money tied up in the property.
What is the minimum buyer down payment?
20% is the least amount of money you want a buyer to be in the game. If they have weak employment history or self employed, you would want even more.
Can I check out the buyer’s background?
Yes. We generally “package up” a buyer with their background so you can make an informed decision. Credit history, employment history and rental history are put together for you. We distribute this package to our interested investors.
What does Limestone get out of this?
Our motive is to assist buyers who are just shy of a traditional loan. We make money on the purchase.
Who collects the money every month?
We recommend a few companies who collects and distributes funds. They keep accurate accounting records and do not have a vested interest in the outcome. When the buyer pays the balloon, it’s all on the up and up. They charge modest fees.
Can I collect the money?
Yes but we only recommend this if you have good accounting software and record keeping skills. Nothing will drag you into court faster than a dispute at the end.
What does the process look like?
If a buyer is currently in escrow and it appears their current financing is about to fall out, we will notify all our investors on our distribution list that there is an owner carry opportunity. The buyer is packaged up to those investors who are interested AND have verifiable funds. The investor with the best rate is selected and paperwork is drawn up at the title company. By the time the deal is closed, the buyer is provided with payment instructions. Cake.