Welcome to Real Deals! It’s always easier to learn from real life so here we share information from actual owner financed transactions.
The creation of a note does not always follow a straight path. Often the terms are modified to fit the needs of the transaction. This note in Oklahoma started out as a sale of business, then included real estate, and was eventually modified to meet the repayment needs of the buyer.
The buyer first purchased a key and lock repair business from the seller for $238,000. After paying on the business note for seven years, they decided to also purchase the real estate they had been renting from the seller. This included a single family home and a small commercial building used for the key shop valued at $100,000.
The buyer still owed $62,722 on the business note so they combined the sale price of the real estate to make one note and mortgage for $162,722 at 9% interest payable in 60 monthly installments of $3,378.90 each. The buyer continued to pay timely for another 4 years but then started to fall behind due to a slowing economy.
The buyer and seller agreed to rewrite the remaining balance of $67,897 at 15% interest payable in lower monthly payments of $2,087.77 for another 42 months. The note and mortgage were modified to reflect this revised arrangement.
The buyer had paid down the balance to $60,226.42 and still had 36 payments remaining when the seller decided to sell the note to an investor. A note investor agreed to purchase the note and mortgage relying solely on the real estate value of $100,000. The investor requested a new appraisal and title policy as part of the standard due diligence. The seller received $52,400 at closing for their right to the future note payments.
One of the great advantages of seller financing is the ability to customize the repayment arrangements to meet the needs of the buyer, seller, and general market.
Real deals are based on actual transactions completed within the past ten years. Market conditions change frequently resulting in pricing and underwriting changes by note investors. Work with qualified professionals when creating new notes to obtain accurate and up-to-date pricing and investment parameters.