If I am selling Real Estate, whether investment property not, and using seller financing the risk can seem daunting. Fear not! As a Seller there are many ways to protect yourself in the transaction. Here are Five ways to protect your interests in seller financed transaction;
1. Keep the deed in your name. Even in a land contract the deed is transferred to the buyer, but it is held in escrow. Make sure it is YOUR attorney that holds it. In case of default you don’t want the buyer’s attorney to play games with that critical instrument.
2. Pre-qualify your buyer. As a Mortgage Broker, I am very familiar with all the onerous conventional finanacing guidelines. These were put in place to protect lenders from making bad decisions. Get familiar with them and use them to screen your buyers. If they fail to qualify for a conventional loan, you need to make the informed decision to move forward based on the merrits of the transaction. Don’t be embarrassed to ask! It’s your asset to lose!
3. Do the paperwork! I can’t tell you how many times I’ve seen people get involved with real estate on a handshake and later have the parties forget what was discussed and whose responsible for what! There are legal instruments out there to protect all parties in the transaction. You can be creative, but use the tried and true instruments to do it and sign everything!
4. Use professionals! Hire a real estate attorney to help you structure your deal. Remember, they have errors and omissions insurance, so if they miss something, they pay, not you! It is important to note that if we all listened to our attorneys and accountants, whose job it is to mitigate risk, we would do nothing and live in a plastic bubble. You are the client and YOU run the show! This goes for attorneys, inspectors, Realtors, accountants and every other service you require. Hire them and listen to them, but remember it’s your deal! Risk equals reward!
5. Manage the transaction AFTER it is closed. Business IS Relationship! Stay in contact with your buyer. Drive by the property a few times a month for the first few months to make sure it is being cared for. Offer to answer any questions your buyer may have and check in with them two or three times a month at the beginning of the transaction and toward the end.
Putting these steps into practice will not guarantee your transaction will be successful but it Will increase the odds dramatically. If you get into trouble and you have followed the five steps outlined above, you will be able to recover your property quickly and with the least amount of pain possible! Happy Investing!!
