What are the pros and cons of owner financing?
There are several potential pros and cons for sellers, at least.
You will get a steady monthly income.
You won’t have to worry about the buyer qualifying for financing, or as much financing.
Tax obligations may be stretched out in certain cases — see a tax pro for details.
But, it could also happen that:
1. The buyer won’t make payments.
2. The buyer won’t put in much equity (or any equity), thereby increasing your risk.
3. The buyer will graciously provide the loan agreement papers, including “substitution” and “subordination” clauses that you won’t want.
4. The buyer will rent the place, not make payments, and simply flee. This is an extreme scenario.
5. The buyer will say there is hidden damage and refuse to make payments until the matter is resolved in court.
Bottom Line: If you are an owner do not agree to seller financing unless your attorney has first approved all terms and documents.
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