What comes to mind when I mention real estate and DIY? Kitchen updates? Deck add-ons? How about for sale by owner (FSBO) and owner-financing? With over $100 billion in seller-financed real estate notes created over the last five years, and many sellers forgoing the use of a Realtor, it’s a topic worth learning about. In this article, we’ll explore Craigslist owner financing – where a seller markets their property online and offers to carry back a mortgage note.
The Right Situation
Recently I ended up owning a circa 1850 farmhouse in a rural area of Maine. The house had great potential but needed lots of “love.”
I appreciate old houses, and I’ve always wanted to take one on as a project. Unfortunately, I live in Southern California, which is just too far from Maine. It made more sense to sell the property to someone local who could take on a project like this.
I asked a couple of Realtors to take a look. Both were less than enthusiastic. Generally, Realtors shy from project houses that could sit on their listing sheet for months. I wasn’t surprised by their reactions and honestly can’t say I blame them.
I also know from experience that banks won’t finance homes that need heavy restoration. I was willing to carry back the mortgage. But Realtors tend to be less educated about owner financing, which also causes them to back away from such listings.
Luckily I had Craigslist and Owner Financing available.
Craigslist Owner Financing – Breaking It Down
What you’ll need:
- Photos inside and out – I used pictures that one of the very lovely Realtors had taken and shared with me, combined with a set taken by an auction company.
- A one-page flyer – Include a few photos, the property address, the asking price, your contact info, and a brief marketing write-up.
- Utilities – When I took ownership of the house, the water and electricity weren’t active. I ended up turning them on.
Other things I needed because I was far away:
- Electronic lock – Since the property was in a small town, in a decent area and empty, I felt comfortable sharing an entry code with interested parties so they could tour the home. I found a local locksmith using Google and hired him to install the lock.
- Digital waiver – Before I shared the entry code, I sent each individual a release created with Google Forms. The language was simple (you may want to consult an attorney if you do this). It asked the signor to waive rights of a claim against me in case they were to injure themselves touring the property. I also had property insurance which covers such instances.
How To Market Owner Financed Listings
There are various schools of thought on this, but I’m a proponent of using my ad copy to filter out those who probably wouldn’t turn into buyers. The biggest issue I wanted to avoid comes from the “no credit” connotation that often accompanies owner financing.
Look at these examples:
A: “House For Sale. Owner will finance.”
B: “House For Sale. Owner financing available to qualified buyers.”
I guarantee that listing “A” will produce many phone calls from people who read it to mean “No credit, no downpayment, no problem.” I don’t want these buyers because I don’t want to turn my potentially beautiful farmhouse into an ugly loan.
When I ran listing “B,” I mostly received calls asking, “what is the down payment amount, the loan terms, and what are the requirements to qualify?” All thoughtful questions that show a certain level of sophistication.
I use an independent third party loan underwriter to verify the buyer’s ability to repay. He takes a loan application, then checks credit reports, pay stubs or tax returns, and confirms payment history with their landlord or lender.
When asked about qualifying, I share the details of the underwriting process. Letting them know there will be something legitimate and thorough also acts as a filter—a good thing in my view.
I kept my Craigslist owner financing process simple. First, it started by posting an ad that included a photo, the property address, the asking price, and a brief marketing write-up.
I’d receive an inquiry, and we’d have a phone conversation. Since the house needed work, I’d be very clear about that (more filtering). I’d also offer to send the full set of photos (post these to a site like Dropbox and share a link to the location of the pictures).
If they were interested in a tour, I’d email the link to my waiver form. Once they completed it, I’d send the entry code and ask them to contact me after they’d taken their tour. Receiving feedback from potential buyers was helpful.
I received several low-ball offers, which I kindly said I’d consider but didn’t actually. I was confident I’d find the right buyer for the house.
Once I had someone interested in the house, I asked them to submit a non-refundable earnest money deposit and a loan application. My loan underwriter charges $500. I made sure the deposit covered his fee.
After the loan was approved (the very first applicant was), I sent a purchase agreement for signature and instructions to my attorney in Maine.
My attorney is a one-stop-shop. He drafted the purchase agreement, promissory note, mortgage, and Maine real estate disclosures. His firm also handled the title search, provided title insurance policies, handled escrow, closing, and document recording. A qualified attorney will explain all of this to you and make sure nothing slips through the cracks.
After the closing, I sent all of the documents to my loan servicer, who will collect payments, etc.
My Options As A Note Holder
As a real estate note holder, I now own paper rather than property. I took care to create a good note with good borrowers on a property I was familiar with. For that reason, I’ll probably continue to collect on the note for many years. But I have other options as well. The two below would allow me to turn my future payments into cash:
Although more advanced, notes may also be used as collateral for other loans, or exchanged in trade for services or other assets.
I have to admit that I had reservations going into the “Craigslist Owner Financing” process on a property that was so far away. However, things fell into place perfectly.
Every community needs affordable housing and has buyers who can’t easily qualify for bank financing. For this reason, there was no shortage of interest. I have a feeling it would have taken longer to sell this particular property if I’d used a Realtor and hadn’t offered owner financing.
Without financing, a buyer would have had to pay cash. Those buyers are usually investors (flippers) who expect to purchase at a discount with meat left on the bone after a rehab. Interestingly Maine is a state where marijuana growing and sales are legal. A couple of people in that business offered me cash but expected a discount as well. I passed.
The next property I’ll be selling is a newer home located in a busier area of Georgia. That scenario is different than what I’ve just outlined. This time I’ll be using a Realtor. I’ll offer owner financing as an option simply because I always do.
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