Many home owners dread being involved in a situation where a property they've listed for sale has been sitting unsold for too long. The basic reason is usually the same - the asking price is too high for the market conditions.

In these situations, the seller is forced to lower their price in hopes of making the property more attractive to buyers. Unfortunately, this technique doesn't always work to sell the real estate, especially if the seller is unwilling to "discount" their house by much, or if the market is weak.

A great solution for the seller is to open up to an entirely different segment of buyers by offering seller financing. This way, the property owner can often sell their house for their desired asking price (or even more), and find a buyer more quickly than with conventional real estate methods.

Some homeowners are hesitant to offer seller financing services because of a lack of understanding about how private financing works.

Like other things that seem complicated on the surface, it's simply a matter of grasping the fundamental issues specific to seller finance. By following the proper procedures to locate a prospective buyer, create a note, and resell the note to a note purchaser (if necessary), a real estate seller that is willing to "think outside of the box" can sell their home for more money and close the deal faster as well.

Finding a prime buyer for seller financing

The majority of home buyers looking for seller financing look through the "For Sale By Owner" ad listings in the local paper. Even in today's Internet-dominated world, newspaper advertising continues to be an effective means to reach those looking for seller financed deals. A simple sale ad including the line "seller financing available" or "credit issues OK" should help to generate interest from the right potential candidates.

Doing the deal

Once a serious buyer is "on board" to buy, the seller works with that party to set the terms of the note. It is especially important to draw up the contract to favor the note holder when the property owner will need to immediately resell the note in order to receive a large lump sum of cash for their future payments.

Larger down payments are better than smaller amounts, and shorter terms (5-10 years) and higher interest rates (12%-20%) are usually preferred by buyers. It is the property seller's option to determine what is acceptable and what terms to which the buyer will agree.

Once the details of the initial payment, payment term, interest rate, and any necessary clauses are established, the buyer and seller can create a new seller-financed note. Creating the note can be handled with standardized boilerplate or the assistance of an attorney, although some note sellers manage the private sale of their home without any paid legal counsel at all.

Once the newly-created note has been reassigned to a buyer, the property seller will have "cashed in" their future monthly payments for an immediate lump sum payment from the note buyer - an amount similar to what they would have received from a conventional sale.

Locating the right note buyer

The best method to find note buyers is using the Internet. Using a popular search engine website with keywords such as "buy monthly payments" or "buy mortgage payments" could lead to many interested buyers.

Enlisting the assistance of a note finder

In the secondary finance industry, a unique group of individuals exists who specialize in locating buyers. These cash flow specialists - often known simply as "finders" - have a unique understanding of what most buyers are looking for. These finders are happy to work with property sellers (or their real estate agents).

While note finders can't offer any legal advice or assist with the creation of a note, they are qualified to give general recommendations about note buyers' buying criteria. Most importantly, note finders will be able to help locate a buyer for a newly-created cash flow.

Creating an attractive note for resale

Note payers and note buyers are usually looking for very different things. Most payers would love a "no money down" purchase over 30 years at a low interest rate, but buyers wouldn't want anything to do with this sort of note because it is a bad deal for them.

An initial down payment of at least 10% of the sale price, a fully amortized term between 60 and 120 months, and an interest rate of 12 to 20% is typically what a note buyer is seeking. These conditions are necessary in order to minimize the discount to the note seller. Note buyers will always reduce the payout amount somewhat in order to counterbalance the risks - limited equity, a payer with low or no credit score, possible foreclosure, or having to foot the bill for legal actions and selling the property via auction.

When property sellers are willing to offer an unconventional, private financed note to sell their house, the end result is often much better than the alternative of lowering the price until a "traditional buyer" finds the deal attractive. Smart sellers who can apply owner-finance techniques will have a huge advantage in closing difficult deals in tough markets.