Question-owner Finance

[JMC]

I had a guy want to by my wash. He said he could put down 20% and would like for me to carry the note. How do I get his credit reports from the different agency's? The internet I'm sure but is there a specific site and what type of info do I need from him? I have always bought houses and businesses and the owner financed. I knew them and they knew me. We would make the deal shake hands and go our merry way, to the lawyer's office on closing day. This is the first time I am going to sell and owner finance. I don't know the guy. Please help me to not make a mistake because I did or did not something right.
Thanks
Jake

 

[MEP001]

The biggest mistake may be down the road. What if he decides to run it into the ground and default on the loan? You'd be stuck with a wash that's worth much less than before and possibly needing many thousands of dollars in repairs. I've seen this situation a few times.

He may truly want it and intend to make the proper effort at it, but are you willing to take that risk? Let the bank do it.

 

[Waxman]

I agree that if the deal is doable with him putting 20% down and you financing, then the bank should be willing to loan on this business deal, too.

I've seen a couple owner-finance deals around here go bad. One was a large apartment complex. The new owner got in over her head, rented to the wrong type tenants, let the complex become run down, and then defaulted.

The other is a bar that's not doing well, missing payments and losing customers. That one seemed like a no-brainer to me, because it enjoyed steady business for years until the new owner took over.

Problem is, who knows if the new owner will give it his all, care about the place like you do, support the local community, develop good relationships with local police, network, market the wash, etc.

 

[rph9168]

I held a note on a business I sold. The buyer filed bankruptcy three years later and I lost $140,000 on the deal. I would not recommend holding the note under any circumstances. The guy may have no intention of screwing you down the line like my guy but is it worth the risk? If he wants it that bad and has 20% to put down he should have no trouble getting a bank to finance the deal unless his credit is bad. Otherwise - pass.

 

[Jim L.]

I agree with the others, 20% down would not be enough to get me to owner finance. Now if the guy is willing to up that to 40% I’d have to think about it. You will make more interest dollars loaning him money that putting it in a CD. Also if the guy trashes your place and defaults you would have enough to refurbish and come away with a like new wash. Just my $.02 worth.

 

[Ben's Car Wash]

I'd think about it... your in first position! What interest rate? What price? Would could sell it for more thn what you could repo it for 5-6 years down the line... and make more selling it again.

As long as your in first position. I lost $93,000 once in a second position when a buyer filed bankrupcy.... because the first leinholder took the property, unless I wanted to buy it back. I made more than enough to cover my loss and have been able to write off the loss every year (only can write $3,000 per year of a bad debt off...so it will carry for 30 years!).

If you sell, keep first position. Get 1-1.5% or even 2% above the average loan rates. So "investors" or "angels" will go 12% or 15% on a loan. Personally I think that is too high. Today 8% is fair and you can stipulate that the property has to be "maintained" in a certian condition or you can bill him for services (like in deed restricted communities). 20% is a fair down payment. Force him into 25% and on a 3-5 year balloon that is renewable if he stays current at 8% interst. Be sure that your getting a good $ for the wash... not bottom, so if he does default you can relist the wash and make the sale attractive.


Just my 2 cents.

 

[pitzerwm]

Back to one of your original questions, the credit report. Make him produce the credit report. When I did it, In the end I owned everything, that he owned then and everything that he would ever own until he paid it off. He is about 3 years ahead of his payments. If you do the papers right you can protect yourself. Do it wrong and you lose.

 

[cebo]

The only way to go is a lease purchase. I have done several of these on properties other than my wash. In Alabama if you forclose they have a one year right of redeemption. The lease purchase can be specific on upkeep etc. and if they are late on the payment or file bankruptcy you can just take it back immediately. Whatever you do have an competent lawyer look it over.

 

[washman9]

is there any way to require him to have private mortgage insurance the way banks or other lenders require people with little to no equity in homes to have in case of default or foreclosure. could the note be held in the sellers name in case of default? it might be worth even paying the premiums if you had some insurance of getting your money in the event of default.

 

[JMC]

Who do you go through for mortgage insurance?

Jake