It is evident by the flurry of sales that sellers are taking their competitiveness to a new level to attract buyers. There is a willingness by sellers that own their home outright to offer financing to prospective buyers. Stop right there. Before we go any further, if you would consider this please make sure to speak with your attorney to protect your interests. Also, consult your CPA to understand the tax implications.
Here are some recent examples:
- A buyer has enough cash to deposit 45 percent of the sales price, but, does not have income in the US to warrant a reasonable interest on a traditional foreign national loan. This profile of buyer sits on the sidelines waiting for the right opportunity. That is, the right home, condition, neighborhood, value, etc. From the seller’s perspective, assuming the home is paid off, they will have earned the down payment at the execution of the contract, receive interest of 5 percent for the ensuing twelve months and receive the final payoff at closing. If the buyer defaults, the seller will keep the earnest money earned, the payments received and foreclose on the buyer to get the home back. Did I mention make sure to get your attorney to write the contract?
- Another seller is willing to consider an “option” contract. In this case the buyer puts down 4 percent of the total purchase price which will be earned upon the expiration of a 15-day inspection period. The buyer then has one year to close on the property, the sellers take their home off the market for that year. Before the end of the twelve months the buyer either closes on the property or loses the 4 percent. The seller has guaranteed income, a motivated buyer and time to figure out where they will move to next.
- Yet another example, a seller sells the house to a buyer with a maximum of two years to close. The buyer pays 30 percent down payment, earned by the seller upon the expiration of a fifteen-day inspection period and rents the home at fair market value with a maximum duration guaranteed of two years. In the meantime, the buyer works on earning more capital and may even end up financing the purchase.
There are considerations like home owners’ insurance, liability, property taxes, maintenance, homeowners’ association fees, etc. which must be worked out in the details of the contract. There are inherent risks and potential gains. When you open owner financing as an option, it allows the home to continue generating income for you, while you can move on to your next home. How much interest will your money earn invested elsewhere? You could even offer the buyers financing where they pay taxes, insurance, maintenance of the property for the duration of the financing period. A sort of triple net rent typically associated with commercial properties.
In Miami there is a definite “buyer’s market.” That is, there are many buyers different than in most US markets. These include foreign nationals, legal immigrants that are business owners and domestic business owners that have cash and income but not credit. There are plenty of realtors in South Florida that fly to countries throughout the world to present the great opportunities in the real estate market. When those buyers get here they sometimes find the lending rates higher than what they’re willing to pay. Providing owner financing widens the pool of buyers.
Oh, by the way, there are also many traditional buyers that can obtain regular financing from traditional lenders. In closing, everything in the market is selling. Everything, that is, which is priced to sell at fair market value. Residential properties as well as commercial properties.
Happy Columbus Day to you and your family. We are grateful to share in the American Experience with you!
Frank DeValdivielso, a member the Miami FL Team and The Keyes Company, is based out of 2423 Le Jeune Road, Coral Gables, FL 33134. For more information you can reach Frank at his office, 786 378 8450, or cell, 786 273 8507. You can also email him at RealEstate@MiamiFLTeam.com and please be sure to visit www.MiamiFLTeam.com for the latest listing and news regarding real estate. Call to sign up for a free monthly market report of your zip code.