Rethinking Seller-Financing!

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1 Jeff Bennett Rethinking Seller-Financing! How Real Estate Agents Can Close More Deals and Earn Higher Commissions By Jeff Bennett As a real estate agent, you know all too well that the mortgage industry is suffering from a major meltdown. Lending institutions are folding, foreclosures are reaching record highs, and subprime lending has caused a catastrophe for property sellers, buyers, and lenders alike. As a result of today s credit crunch, there s a limited pool of qualified buyers and a shrinking supply of conventional lending sources. In addition, there s a growing number of would-be buyers who can no longer obtain conventional loans and an abundance of properties on the market at low prices. Seller financing is filling the void created by the mortgage crisis, offering an alternative to those hard-to-come-by conventional loans. But seller financing can do more for the real estate agents than just sell property. For one, it can sell property more quickly and at higher prices. That s because it offers a much larger pool of potential buyers. Seller financing is fast emerging as the solution to the collapse of many lending institutions, and the shrinking supply of financing available from those that survive. For you, the real estate agent, it could very well be the key to your survival in this business. After the high-interest rates of the 1980s, seller financing became a specialty niche among real estate transactions. The upheaval in the housing market, however, is now creating an extraordinary demand once again for this alternative funding source. Consider this: two years ago, seller financing accounted for about 1 in every 400 real estate transactions. Today, it accounts for 1 in every 50 transactions. What s more, some real estate experts predict that seller financing will soon become the financing vehicle for one out of every ten real estate transactions.

2 Not since the 1980s, have we seen the extraordinary increase in, and necessity for, Seller Financing. What does this mean to you? Seller financing provides you the opportunity to sell properties to quality buyers, at the full retail property values and more quickly. The smart real estate agent will become adept at using this method. Indeed, your level of success will likely depend on how well you use seller financing. For Quality, Qualify Qualifying for a conventional mortgage today is much more difficult than it was just a few years ago. As a result, there are many more quality candidates for seller financing than there were in the past. These are people who ve been rejected by conventional lending institutions, in part, because less money is available. More restrictive underwriting criteria are in effect, which disqualify countless candidates who have both a willingness and the ability to meet the requirements of the loans. In addition, many other would-be buyers have had hardships that they ve since overcome. Together, these factors contribute to a startling fact: As many as 50% of the people who would have qualified for a conventional mortgage just two years ago no longer do. True, there had been much reckless lending to risky borrowers in recent years. But since the shakeout in the lending industry, many good candidates are now being denied the opportunity to borrow money. Seller financing is the ideal solution for these people. To avoid the same pitfalls that brought down many lending institutions, however, the seller must weigh the risk of each loan and proceed only with those that present a high likelihood of success. That means being diligent about qualifying the buyers and lending only to those of the highest caliber. A Safe Bet How risky is seller financing? Much lower than it used to be. In the past, would-be borrowers paying on seller-finance mortgages were, as a group, much riskier than they are today. That s because it was easy, too easy, to obtain a conventional loan. People who failed to qualify for traditional mortgages were, by definition, the riskiest borrowers. Lending institutions have since tightened their criteria, making it far more difficult for would-be buyers to borrow money. As a result, more people are now purchasing property with seller financing. Squeezed out of conventional lending, formerly qualified applicants are increasing in number and anxious to buy property. This raises the quality of the typical seller-finance candidate. Many are just missed borrowers who now fall narrowly outside the newly tightened criteria of lending institutions. These are reliable, low-risk prospects who

3 show every intention of meeting the terms of their loans, and they have the ability to do so. As many as 50% of the people who would have qualified for a conventional mortgage just two years ago no longer do. because there is an existing mortgage on the property does not stop them from being able to offer seller financing, however it may limit some of their options. Consulting with a Note Professional will help you know and understand all options available. Why Seller Financing? Most of the time, failed closings are the result of either the property or the buyer didn t qualify for financing. Seller financing fixes that problem. With seller financing the seller can get much more cash for their property than is possible in a traditional sale. You can sell many more properties this way since owner financing is usually much more attractive to a buyer than bank financing. For a complete list of benefits to you, the seller and the buyer see at the end of this report or visit our website. TIP: Don t write off failed closings. We can show you how you can go back and close many of them or prevent failures in the future. Don t let your existing listings expire without considering Seller Financing. One of the biggest questions always asked is what if they owe on the mortgage. Just Why Work with a Note Pro If you ask the seller to carry back a mortgage, more than likely, they will refuse. The seller wants all of their cash immediately when the transaction closes. But there is a huge number of people who will want to do seller financing or will change their minds to do it once it is properly understood. Once the financing is created (Note Manufacturing when working with a Note Pro) the payments on the note can be completely or partially sold to the exact needs of the seller. Proceeds from the sale give the seller the cash they need now (plus your full commission.) The seller receives the rest of the sale proceeds in monthly payments and/or a lump sum in the future. The seller will realize more cash than in a straight bank-financed sale. Plus there are many more benefits that you probably never considered. For a complete list of benefits to sellers and buyers see at the end of this report or visit our website. Services of a Note Professional

4 The designation of a Note Pro (Professional) has been established to address the weaknesses that are prevalent in the seller financing market. The Note Pro is a seasoned professional with expert knowledge in all aspects of seller financing. He or she uses standardized procedures to ensure that all required criteria are properly met and that all documents are completed accurately. This is in stark contrast to the majority of seller financed transactions, which are "homemade" and, therefore, subject to problems that lessen the quality, value and safety of the seller financing being offered. The Note Pro can help the homeowner and the real estate agent to perform common sense due diligence on the buyer, help with the proper structuring of the note for the most benefit to the seller, make sure all state and federal disclosures are properly done, facilitate the sale of the note so the seller can obtain the most out of your seller financing transaction, and provide education on the proper maintenance of any note/mortgage they choose to carry. Most lawyers and real estate agents are not familiar enough with the seller financing market to properly handle all the details that should be done on a seller financing transaction. We have seen thousands of transactions where this has cost the homeowner tens of thousands of dollars in the end because some simple steps at the beginning of the transaction were not properly done. Escrow companies, title companies, real estate brokers, CPA s and even attorney s have no idea how to structure the transaction in the most favorable way unless they regularly buy and sell notes. When offering seller financing, a homeowner is putting on a banker s hat when they underwrite their own property, so we have to train them to think like a banker. The paperwork should be handled in such a way that preserves the value of the note. The secondary market is going through major changes, and you need to know how to put things together in a way that s attractive to note buyers. Notes that are structured by professionals in the industry earn 20-30% more on the secondary market verses those drawn up by attorney s alone. The number one reason for the agent to be working with a Note Pro is leverage. Let us handle the details of the seller financing and working with the closing agents while you spend your time getting more buyers and sellers. Working with the Seller First, explain to the seller that financing terms are a more powerful sales tool than price. By agreeing to sell the real estate with seller carry-back financing, the property owner can get a higher price for the property than with traditional financing. Next, the seller sells all or part of this newly created note/mortgage to an investor who provides the cash the seller needs now. Getting cash out of a note is 100 times easier than pulling equity out of real estate.

5 The seller who only sells with a partial will receive the balance of his or her money in monthly payments and/or a large balloon payment in the future. Tip: For most sellers, receiving cash now as well as cash in the future diminishes the tax consequences of the sale. At the end of this report is a few sample case studies to review. Working with the Buyer When offering seller financing, finding buyers is usually not an issue you have to worry about. Right now they are everywhere begging for someone to help them get into a property. Many of them are asking for Lease Options not knowing much about the benefits of seller financing. Those who do understand seller financing will certainly see it is as easier than going to an institutional lender. Many times they probably could not have bought a property without seller financing. Conclusion I hope we have sparked your interest in rethinking seller financing and shown you a new way to create listings that convert rapidly into sales. Many creative real estate agents have taken the time to learn these new ideas and have profited greatly. You can do it, too. What does it take to get started? It takes some creative thinking and partnering with a seasoned Note Pro (The Note Coach). New financing ideas often times require some thinking outside the norm. Many professionals would rather stick with the traditional methods they are more comfortable with don t do it! You will be losing out if you do. There is a giant world of opportunity out there. If you don t seize it someone else will. The ideas presented here can make a dramatic difference in how successful you are as a real estate agent. Please call with any questions or concerns you may have. We have over 30 years experience in the seller financing business and have handled over 30,000 transactions. I hope you never think about seller financing the same again. Jeff Bennett 189 Berdan Ave, Suite 422 Wayne, NJ Phone: Fax: jeff@thenotecoach.com

6 About Us The Note Coach is a New Jersey based company, a seller-financing specialist, note appraiser, and note investor of cash flows secured by real estate nationwide. The Note Coach helps homeowner, investors, lawyers, and real estate agents in the manufacturing (creation) of notes. This process includes consulting, educating, applying common sense due-diligence underwriting practices, closings and handling of proper disclosures, as well as proper guidance on maintaining a note properly. We also help facilitate the purchasing of both partial and full notes nationwide. The Note Coach invests in individual seller financed notes of all collateral types as well as institutionally created pools and portfolios. We are not lenders, we provide cash in exchange for future income we do not originate loans. The Note Coach provides expertise and knowledge to many professionals such as Real Estate Agents, Lawyers, Accountants, Business Brokers, etc. We help them to craft the best terms for privately held notes so that they may be properly appraised and/or sold on the secondary market. Presentations I would be glad to meet with you, your staff, or anyone else who might be interested in learning more about the buying or selling of privately held notes. I can come and give a talk to any size group of people and can explain in more detail the steps needed to safely and effectively implement Seller Financing. If you would like me to sit with you and / or your client and go through the entire process give me a call. Existing Note Referrals! If you know of any type of payment stream that someone is currently collecting. Give them my information. If I can buy all or part of their payment stream there is a significant referral fee that we provide to you. For more information give me a call or check us out on the internet.

7 Seller-Financing is a Win for Everyone Benefits to the Seller: The number of potential buyers will increase significantly. Ability to ask a higher price for the home because of the favorable financing terms. The sale will close more quickly than with bank financing. Ability to defer some of the gain (tax benefits) on the sale by taking part of their money now and part later. Lower over-all closing costs and time invested. In most cases, the note you create can be sold and converted into cash at any time. In some cases owner financing is the only way to sell the property especially when we start looking at land ratios, condos, or high priced houses situations. The seller can receive a higher yield on his/her investment by receiving monthly payments. The seller could negotiate a higher interest rate. The seller could negotiate a higher selling price. The property could be sold 'as is' so there will be no need for repairs. The seller could choose which security documents (mortgage, deed of trust, land sales document, etc.) to best secure his/her interest until the loan is paid. The seller can sell enough of the note to meet their cash needs now and is able to retain the rest of the note for additional income. Benefits to the Buyer: Buy with less than perfect credit. Faster closings. Negotiate a down payment not possible with an institutional lender. Negotiate an interest rate not possible with an institutional lender. Avoid paying the onerous points institutional lenders charge. The buyer will not have to meet rigid bank qualifying standards. The buyer may be able to purchase a property the banks would not qualify him for. The buyer will pay lower closing costs. The buyer may be able to make a smaller down payment than the banks would require. The buyer won t have to pay origination points or mortgage insurance. The buyer may not have to establish a prepaid escrow account for taxes and insurance. Both the buyer and the seller can make substantial savings in closing costs. They can negotiate interest rate, repayment schedule, and other conditions of the loan. The borrower does not have to qualify with a loan underwriter. Doesn t have to pay points or excessive bank fees. Benefits to Real Estate Agents: You sell more properties Sell houses for higher amounts You receive your full commission Faster closings Easier closings less likely to go wrong at the last minute Tap into a market that few others are even looking at or considering