Hi,
I have vacant residential lots in Florida.
1.What are the pros and cons of seller financing?
2. if a buyer defaults is the only option to foreclose against them?
3. Any templates I can start reviewing to structure seller financing?
Thanks in advance for your help!
- What are the pros and cons of seller financing?
You can see a list of the pros in this blog post: https://retipster.com/why-seller-financing-makes-sense/ - I wouldn’t say this is every pro, but it’s most of the basic ones.
As for the cons, it takes longer to get your money (a lot longer in some cases). There is the risk that the buyer will default, which is really more of an inconvenience than a risk (if you bought it right, you should be financially safe, but it’s still annoying to deal with someone who doesn’t do what they say).
- if a buyer defaults is the only option to foreclose against them?
Not necessarily. If you’re able to communicate with them (if they don’t ghost you), you could work out an arrangement where they simply sign over quit claim deed back to you to forfeit their interest in the property to clear up the title. You could even offer to pay them $100 for their trouble in doing it (it’s a lot less time and money than going through the proper legal process).
However, if they aren’t willing to do this and/or won’t respond to you, then you would have to go through the appropriate process as required by your state. Some states makes this easier than others. Here’s a blog post on that: https://retipster.com/misconception-seller-financing/
- Any templates I can start reviewing to structure seller financing?
First, you’ll want to find out what the best loan instrument is to use in your states. Most states will use either a Land Contract or a Deed of Trust (one or the other, but not both). Here’s a blog post on that: https://retipster.com/land-contract-vs-deed-of-trust/
There are plenty of templates you can start with on Rocket Lawyer or Law Depot, but they aren’t always spot-on with regard to state-specifics. If you want to be really sure your docs are buttoned up, the best way is to run them through a real estate attorney in that state who is familiar with seller financing. It’ll be more expensive on your first deal, but you can use that same template for the rest of the deals you do in that state.
Disclaimer: I’m not an attorney. Nothing above is legal advice.
Another risk is that you own the deed and the buyer starts building on it or clearing it without your knowledge, fundamentally changing its condition. I contacted another land flipper on this and he said that they have a way to grant the deed and title to the buyer with 30% down. Not sure why 30% down is the magic number for them to get the deed and start building.
@herrbshaw That 30% probably covers their acquisition costs. Plus it would decrease the chance of default once the buyer has that much $ invested.