I get bombarded with solicitations for money making “opportunities” that are vague about what is required until the offerer gets a credit card number and makes some money themselves.
While I was writing the last series of posts about marketing homes in a buyers market, I received one of these solicitations in the US mail. I didn’t toss it immediately because it was related to real estate finance. After reading it carefully and doing a little research I figured out that what they were offering was to show you how to broker notes created through owner financing to investors who buy them at deep discounts.
The reason this intrigued me is that I’ve been trying to somehow incorporate financing into a the product “package” to make a listing in the Durham luxury real estate market more competitive. A traditional way has been for the seller to “buy down” the rate offered the buyer. The buy down comes right out of the seller’s net. Owner financing is usually an accommodation to a buyer who can’t get conventional financing. However, with short term Treasuries yielding next to nothing, owner financing might look like a terrific investment. Properly structured it produce a high yield and be relatively safe.
Obviously, this has no benefit to low net worth sellers with no equity in their home. But many luxury properties are owned by people that still have high net worths but fewer high yield investment options. For example, on a $1M listing, if the owner offered $300K in owner financing at the prevailing second mortgage rate, say 7%, what better investment options do they have?
Honestly, I’ve never been involved in a transaction involving owner financing, but the research that I did provides plenty of guidance for minimizing risk in such a situation. One is making sure you have a credit worthy buyer just like a bank would. It’s also true that most people attempting to buy a million dollar home don’t need special financing. But with banks being ultra-cautious and liquidity shrinking for even high net worth buyers, it still might be a win/win for everybody in some situations.
My real point here is that as sellers and listing agents we have to think about the whole package being offered to compete effectively with other sellers when there are few buyers in the market. This is just one thing among many to consider in the “product” category of the marketing mix.
There is more about packaging a more attractive product in the series of posts that I just completed. Select the Special Markeing Series category in the Category drop down box on the right to access the series.
