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Comment by TuringNYC | Hacker News Reader

I've had people wanting to "buy" some property you have. Once they get you to agree to sell, then they ask if you can self-finance the sale (i.e., you become the bank and "sell" for nothing and they give you a monthly mortgage payment.) Sounds OK in theory, but you'd need a lot of paperwork/legal to vet the whole deal and you have no idea if the person can even pay until you spend even more on credit checks, etc. And If at some point they stop paying, you have to spend yet more on foreclosure and all the other stuff real banks have to deal with.

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>Sounds OK in theory

Sounds terrible in theory!

It’s not if the income stream and high yield rate from a seller financing deal is more important to you (as the maker of the note) than a lump sum of cash. Everyone has different financial requirements, collateral they’re willing to put at risk, etc. You’re using today’s dollars (or assets) to find ways to buy more of tomorrow’s dollars (“investing”).

The paperwork isn’t too difficult to put together either.

You don’t want to be the “Bank” with only one note tying up a large percentage of your capital.

Just ask Donald Trump.

You do if you need the risk adjusted return and can’t get it elsewhere.

I suppose that’s fine if we’re agreeing it’s a last ditch effort

Jack Boggle and others have stated you’re not getting above 5 percent risk adjusted returns in the public markets over the next decade at least. You can realize 7-10% returns making a note seller financing. I would assume we’re already of the understanding a last ditch effort is necessary to obtain necessary returns.

I think the issue is diversification. Carrying the note for a buyer can be a decent idea for a developer who owns 100 properties, but probably not if the loan represents 50% of your assets. Calculations like "risk adjusted return" start to fall apart when you get out of continuous statistics and into single-event probabilities ...

I can't imagine why this ever would make sense. Only scammers would benefit would accept this, because of the lack of clarity in ownership, it's like a deliberate attempt to circumvent normal financial transactions, which only benefits scammers.

It strikes me as the same thing as the fake-check auto purchase scams that infest different on-line auto sales channels.

You should read more on seller/owner financing to understand why one would use it in a transaction before dismissing it as a scam. To think only scammers would benefit is an ignorant position to hold if you don't understand why counterparties in a real estate transaction would elect this financing mechanism over conventional financing. Ownership interest is still recorded with the local jurisdiction, so nothing is hidden (although with a land trust, you can hide beneficial interest [it's treated as personal property and handled with trust docs; you could think of it as tracking real estate ownership "off ledger" since it's not recorded with a deed] so people don't know who own a parcel).

Not with a 20% down payment.

They want to rent, but with foreclosure protection. If they rent and don't pay, you can evict in 2 months. If they do this and don't pay, good luck evicting in 2 years.

I'd ask for 25% down and 20% interest, and write quicker eviction for non-payment into the security instrument, as a separate civil action from a foreclosure.

...and then, I'd re-sell the note to a rich person/company who can afford better lawyers, because I don't really need my assets pinned down like that in one high-risk loan.

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