Lesson 3 of 5
Seller finance terms that work for both sides
Five variables decide everything: price, down, rate, term and balloon.
9 min read
Trade price for terms
A seller who will not take 70% of value may happily take full asking at 3% over fifteen years with a small down payment. You pay more nominally and less in real terms, and they get monthly income and a number they are proud of.
Underwrite the payment, not the price
Rent minus taxes, insurance, maintenance, vacancy and management must cover the payment with room left. If it only works at 100% occupancy, it does not work.
Balloons and exits
A five-year balloon means you have five years to refinance or sell. Say out loud what happens if you cannot. Longer terms and no balloon are worth paying for.
Paper it properly
Promissory note and mortgage or deed of trust recorded, a servicing company collecting payments, insurance naming the seller, and taxes escrowed. Handshake seller finance ends badly for both parties.
Do this next
- Write two term sheets for the same property: cash discount versus full price on terms.
- Find a loan servicing company that works in your state and note their fee.
Education only — not legal, tax or investment advice, and no promise of income. Rules differ by state; check yours and use a real estate attorney.