What is Owner Financing?

Owner financing or peer-to-peer financing is when an ordinary seller becomes the lender, rather than having the buyer get financing from a large institution such as a bank. How it works is, the buyer usually gives the seller a down payment and then holds a Real Estate Note for the remaining balance of the sale. The note will consist of the term of the payments (number of months). It will also state the amount of interest to be paid, as well as where and to whom they should be sent. The note can also have special considerations in it, such as a due on sale clause.

Monthly payments

When a seller disposes of a property using owner financing; they end up with a note secured by the Real Estate, as well as a monthly payment. That payment can be a pretty good little monthly income, in which the seller can use to supplement their income. Some people might find it an advantage to defer the taxes they pay on the Nachrangdarlehen sale over several years rather than having to pay it all at once, like in a conventional sale. Keep in mind though; I am not giving out tax advice, one would need to consult a Lawyer or Accountant concerning their taxes in any given situation.

All Cash

Once a person sells a property with owner financing they now hold a Real Estate Note. The Note Holder can either sell the note or continue to receive monthly payments. Sometimes a person who has owner financed a piece of Real estate finds themselves in a position where they need a large sum of cash rather than the small monthly payments they are receiving. The reasons a note holder would want cash instead of a monthly payment varies. They might be worried the buyer will stop making the payment. The reason could be that they are afraid the property might go down in value and not be worth as much as what is owed to them in the note. It might just be that they need the money for bills, kid’s tuition, or a luxurious vacation they have been dreaming of.

Selling a Real Estate Note

Whatever the reason; if a person who sold Real Estate through owner financing wants all cash rather than small monthly payments, there are Investors who purchase those kinds of notes. A great resource for a Note Holder looking to sell their Real Estate note is a Note Broker, or Note Finder. What this person does is find the Nachrangdarlehen seller, gather the note information, and match the seller with a prequalified private investor. Once there is a match, the deal gets closed through a title company or lawyer. Then the seller gets their money, and the private investor gets the note.