Real Estate Notes and Land Contracts
Real estate notes and land contracts are legal documents created when one individual sells real estate or land to another individual. Also referred to as "real estate receivables," these notes are used to secure real estate transactions; particularly when the seller provides private financing.
When real estate notes and land contracts are privately financed by the property owner, it is referred to as seller carry back financing. In this type of financial arrangement, the property owner acts as the lending institution. Some sellers carry back only a portion of the loan, while others agree to finance the entire amount.
Real estate notes and land contracts obligate the buyer to pay back a loan on certain terms. Although real estate receivables can be drafted by the individual parties, it's wise to seek legal counsel. At minimum, have a real estate attorney review the contract to ensure it is legally binding and protects the assets of both buyer and seller.
When crafting a real estate note or land contract it's important to be aware of techniques that will help you maximize your financial portfolio. Real estate receivables are a valuable asset which can later be sold to an investor such as Simon Volkov.
When offering private financing on real estate, experts recommend obtaining a minimum 10 percent down payment on a home, and 20 to 30 percent for commercial properties. Obviously, the more down payment money you receive, the less risk you will carry.
The terms of the note should be as short as possible. Oftentimes, sellers will offer carry back financing for 5 to 7 years. If money is still owed on the loan after this timeframe, the seller will be required to obtain financing to pay off the balance.
Keep in mind that many people who are seeking carry back financing are credit challenged. By providing private financing for 5 to 7 years, the buyer will have the opportunity to clear up past debts and negative credit reporting. Additionally, the shorter the term of the note, the more valuable it becomes. For instance, a 10-year note is worth more than a 20- or 30-year note.
When offering seller carry back financing on land contracts and real estate notes, it's best to work with buyers who have a FICO score (credit rating) of at least 600. This is particularly important if you plan to sell the note receivable to a real estate investor later on.
People with credit scores lower than 600 are typically a higher financial risk than those with a score of 650 or more. When an investor reviews the note, much consideration is given to the risk factors and viability of the loan. Although real estate receivables can be sold when the buyer has a lower FICO score, real estate investors will typically offer less money to buy the deal.
Another important aspect of real estate notes and land contracts is to be certain interest rates are in compliance with the usury laws of your state. These laws regulate the amount of interest charged to individuals in real estate transactions. For the most part, owners who offer carry back financing must charge a slightly lower interest rate than commercial banks. Charging higher interest rates than lending institutes is a criminal offense, so be certain you are in compliance.
If you currently own a real estate receivable and are in need of cash, Simon Volkov can help. As an industry leader, we can provide you with a lump sum cash payment for your real estate notes or land contracts.
To get started, fill out the requested information provided on our secure Real Estate Notes and Land Contracts form. Upon receipt of your information, one of our qualified consultants will contact you to further discuss your financial goals and expectations.
Published on September 23, 2007 at 09:19 PM
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