The Rising Popularity of Seller Financed Real Estate

Every day we hear more about seller financed real estate. It is a very simple but powerful method of financing your home sale by actually becoming the “bank”. In a buyer’s market characterized by weak credit and low down payment expectations, owner financing real estate will really set you apart from others in the homes for sale marketplace.

One significant reason home sellers are embracing mortgage funding with seller financing is the fact there are so many properties for sale. Lender underwriting guidelines are being re-evaluated in the wake of the sub prime lender meltdown and the record number of foreclosures all across America. I think it’s fair to say traditional lenders may be experiencing a public relations problem with consumer confidence.

Let’s pause for a moment to reflect upon what it means to be the “bank” in these transactions. Visualize a traditional bank. Do you see very large affluent buildings that feature a lot of marble, glass, and brass? When I think of the banker, an impressive looking man typically comes to mind. He is well dressed and walks the walk and talks the talk of a person that has his “mind on his money and his money on his mind”.

When you become the banker in a seller financed transaction, you should also walk the walk and talk the talk of an actual banker. Here are a few of the expectations you should have.

Your buyer should not show up empty handed. It is not a good idea to encourage a “No Down/Low Down payment” arrangement. Somewhere along the way the idea of buying a home with no money down became really popular.

Unfortunately the current housing market with its incredibly high foreclosures and bankruptcy filings is an indication that purchasing a home with no equity is not such a good idea if you are not loaded with cash. When seller financing real estate, you definitely want as much of a down payment as your buyer can provide. Ideally you want at least 5% down, more if possible.

Private mortgage insurance requires at least 20% in equity before insurance coverage can be dropped. Today seller financed homes can be structured with as little as a 5% down payment, or as much as 20% depending on your buyer’s credit profile. You will notice I said “credit profile”, not just the credit score.

Even though the credit score is a very significant indicator of the buyer’s credit management history, there are other factors that contribute to the over-all credit profile. For the purpose of this article, when you seller finance a property, always have the buyer’s credit checked. According to the Federal Housing Administration, FHA, the credit score is one of the best indicators of the potential for a loan default. Interestingly, one of the other major indicators is the amount of the down payment.

Your buyer’s “ability to pay” is obviously a major consideration. If they don’t have the cash flow to support the costs of home ownership, you simply cannot justify financing the deal for them. A very quick way to determine a buyer’s ability to pay is the debt to income ratio. The ” DTI” is simply the percentage of your monthly gross income (before taxes), which is used to pay monthly debts.

A generally accepted ratio is 33/38. The first number, 33, represents the “front ratio”. It includes the percentage of monthly gross income that is used to pay your housing costs including principal, interest, taxes, insurance, and extraordinary housing expenses like association fees, etc.

The second number, 38, represents everything listed above plus consumer debt. Consumer debt includes car payments, credit card debt, and installment loans.

The last two qualities to consider are job stability and character. Job stability of course will help you decide which buyers are likely to have great prospects for long term, successful, continuous employment. Today’s employment marketplace is much more challenging than ever. Home sellers must be even more intuitive and insightful than in the past.

Another very helpful characteristic is the evaluation of your buyer’s “character”.
When you look into the eyes of your prospective buyer, you are literally looking into the “windows of their soul”……the essence of who they are.

That “essence” gives you clues about what to expect from your buyer based on inherent Character traits. For example, is their basic “life force enery” positive or negative? Do they assume responsibility for what has happened in their lives or do they quickly place the blame somewhere else?

The issue of your buyer’s character is complex enough for an article unto itself. We describe the issue of character as a “wild card”, because it is so subjective.

Each of these buyer criteria on it’s on is very helpful in determining different things about your buyer. Collectively they represent a comprehensive system of buyer evaluations that can help you easily determine how to effectively structure their loan package. Issues like the term, loan to value ratio, and interest rate, become very easy to comprehend and layout.

You may have noticed, everything related to the home seller and the home buyer is viewed from a very personal perspective. Think about it. You evaluate the personal financial commitment with the down payment. The buyer’s ability to pay is one of the principal considerations of the process. The credit profile reveals not only the credit score, but explanations about what helped to create the score. Job stability and character are given consideration at a personal level.

Here’s one more important observation. Many of the traditional banks loan programs include a pre-payment penalty. If your loan is a bad one, you can’t even get out of it without paying dearly for the opportunity. By contrast, there is almost never a pre-payment penalty with seller financed loans. As a matter of fact, you are encouraged to pay them off any time it’s convenient for you.

After looking at the facts, probably the most compelling reason for the increasing popularity of seller financed home loans is the fact the seller not only wants you to succeed, but he/she actually cares about whether you succeed or not. Seller financed real estate is definitely an idea whose time has come.

Why Early-Stage Startup Companies Should Hire a Lawyer

Many startup companies believe that they do not need a lawyer to help them with their business dealings. In the early stages, this may be true. However, as time goes on and your company grows, you will find yourself in situations where it is necessary to hire a business lawyer and begin to understand all the many benefits that come with hiring a lawyer for your legal needs.

The most straightforward approach to avoid any future legal issues is to employ a startup lawyer who is well-versed in your state’s company regulations and best practices. In addition, working with an attorney can help you better understand small company law. So, how can a startup lawyer help you in ensuring that your company’s launch runs smoothly?

They Know What’s Best for You

Lawyers that have experience with startups usually have worked in prestigious law firms, and as general counsel for significant corporations.

Their strategy creates more efficient, responsive, and, ultimately, more successful solutions – relies heavily on this high degree of broad legal and commercial knowledge.

They prioritize learning about a clients’ businesses and interests and obtaining the necessary outcomes as quickly as feasible.

Also, they provide an insider’s viewpoint and an intelligent methodology to produce agile, creative solutions for their clients, based on their many years of expertise as attorneys and experience dealing with corporations.

They Contribute to the Increase in the Value of Your Business

Startup attorneys help represent a wide range of entrepreneurs, operating companies, venture capital firms, and financiers in the education, fashion, finance, health care, internet, social media, technology, real estate, and television sectors.

They specialize in mergers and acquisitions as well as working with companies that have newly entered a market. They also can manage real estate, securities offerings, and SEC compliance, technology transactions, financing, employment, entertainment and media, and commercial contracts, among other things.

Focusing on success must include delivering the highest levels of representation in resolving the legal and business difficulties confronting clients now, tomorrow, and in the future, based on an unwavering dedication to the firm’s fundamental principles of quality, responsiveness, and business-centric service.

Wrapping Up

All in all, introducing a startup business can be overwhelming. You’re already charged with a host of responsibilities in which you’re untrained as a business owner. Legal problems are notoriously difficult to solve, and interpreting “legalese” is sometimes required. Experienced business lawyers know these complexities and can help you navigate them to avoid stumbling blocks.

Although many company owners wait until the last minute to deal with legal issues, they would benefit or profit greatly from hiring an experienced startup lawyer even before they begin. Reputable startup lawyers can give essential legal guidance, assist entrepreneurs in avoiding legal hazards, and improve their prospects of becoming a successful company.

Think Twice Before Getting Financial Advice From Your Bank

This startling figure comes from a recent review of the financial advice offered from the big four banks by the Australian Securities and Investment Commission (ASIC).

Even more startling: 10% of advice was found to leave investors in an even worse financial position.

Through a “vertically integrated business model”, Commonwealth Bank, National Australia Bank, Westpac, ANZ and AMP offer ‘in house’ financial advice, and collectively, control more than half of Australia’s financial planners.

It’s no surprise ASIC’s review found advisers at these banks favoured financial products that connected to their parent company, with 68% of client’s funds invested in ‘in house’ products as oppose to external products that may have been on the firms list.

Why the banks integrated financial advice model is flawed

It’s hard to believe the banks can keep a straight face and say they can abide by the duty for advisers to act absolutely in the best interests of a client.

Under the integrated financial advice model, there are layers of different fees including adviser fees, platform fees and investment management fees adding up to 2.5-3.5%

The typical breakdown of fees is usually as follows: an adviser charge of 0.8% to 1.1%, a platform fee of between 0.4% and 0.8%, and a managed fund fee of between 0.7% and 2.1%. These fees are not only opaque, but are sufficiently high to limit the ability of the client to quickly earn real rates of return.

Layers of fees placed into the business model used by the banks means there is not necessarily an incentive for the financial advice arm to make a profit, because the profits can be made in the upstream parts of the supply chain through the banks promoting their own products.

This business model, however, is flawed, and cannot survive in a world where people are demanding greater accountability for their investments, increased transparency in relation to fees and increased control over their investments.

It is noteworthy that the truly independent financial advisory firms in Australia that offer separately managed accounts have done everything in their power to avoid using managed funds and keep fee’s competitive.

The banks have refused to admit their integrated approach to advice is fatally flawed. When the Australian Financial Review approached the Financial Services Council (FSC), a peak body that represents the ‘for-profit’ wealth managers, for a defence if the layered fee arrangements, a spokesman said no generalisations could be made.

There are fundamental flaws in the advice model, and it will be interesting to see what the upcoming royal commission into banking will do to change some of the contentious issues surround integrated financial advice.

Many financial commentators are calling for a separation of financial advice attached to banks, with obvious bias and failure to meet the best interests of clients becoming more apparent.

Chris Brycki, CEO of Stockspot, says “investors should receive fair and unbiased financial advice from experts who will act in the best interests of their client. What Australians currently get is product pushing from salespeople who are paid by the banks.”

Brycki is calling for structural reform to fix the problems caused by the dominant market power of the banks to ensure that consumers are protected, advisers are better educated and incentives are aligned.

Stockspot’s annual research into high-fee-charging funds shows thousands of customers of banks are being recommended bank aligned investment products despite the potential of more appropriate alternatives being available.