Re: How risky is this for me? - Posted by Craig (IL)
Posted by Craig (IL) on July 19, 2002 at 11:24:00:
Drew’s and BobS’s replies are right on, Heed what they say. If you buyer is hoping to get a nothing-down deal for himself or herself in this way, your buyer is a novice and doesn’t know yet that it won’t work. What risk would he or she be taking? What motivation would he have to make a go of it. Would it not be too risky for you if he is investing nothing?
On the other hand, you know the property what expences a new owner will incurr and whether or not the figures will work for the new owner. You’re actually in a better situaiton to judge the deal than lenders are. You may want to consider a CFD for much of the pruchase price adn then live off the regular payments you will recieve and benefit from all the interest you will collect. There are tax consequences to interest collection, and you may want to review them with a tax advisor.
Yo may consider a CFD where the buyer puts up only a small amount. This could be in cash or other property (a boat, a hot tub). The less down you require on a CFD teh more interest you would charge. In todays market 9–12% would be reaonable with down paymentts of 10% or less, provided this dons’t destroy the buyer’s ability of making payments to you.
You manage risk by planning for it and knowing how you will proceed and what the consequences are for you. I don’t know if finding a buyer is difficult for you or not, but you have a buyer; you know what he or she must do to make a go of it. If the deal you offer will work for him or her all that is left is determining whether or not this buyer is serious and will do what’s necessary to maek a go of it and pay ou. OF course you must check credit. What is the buyer’s history and knowledge? Etc.
Another otption is taht once you’ve created a note you can sell it at discount and get all cash. Yo lose money this way (since note buyers usually pay less than the princple amout owed–that’s how they make money.) But you may feel ok if your purchase price is high and the loss in the discount is worth it to you to have (a) created a sale of your property, and (b)B make a decent profit anyway. If you are inhterested in in this option, get a note buyer involved before you create the note and work with the note buyer is constructing the note that he will buy.
Another option is to hold the note for 3-4 years. You would be collectying mostly interest during this period. Then, sell the note to a discout buyer. This way you can collected the full value+ in three or four years.