So, here’s the deal: I’ve got this property that I fully own, and I’m thinking about selling it. But here’s the catch—I want to sell it using a setup where the buyer makes payments only towards the principal. The property is valued at $260k, but I’m looking to get $345k as the sale price. I’m planning to structure the deal with a 3-year balloon payment and a 15-year amortization period, with the interest baked into that $345k sale price.
Now, here’s the dilemma: I’m weighing between selling it at $260k with an 11% interest rate and a 3-year balloon payment, or selling it at $345k with 0% interest and the same 3-year balloon payment. I’m leaning towards the latter option to avoid dealing with interest directly due to personal religious reasons. Plus, the property is fully furnished, so that’s another factor to consider.
But here’s the thing: seller financing at 0% interest sounds pretty sweet on the surface, but there are some risks to keep in mind. One biggie is something called “imputed interest,” which basically means that even though you’re not charging interest, the IRS might see it differently and expect you to pay taxes as if you were. Another issue is the possibility of the borrower defaulting on the loan, leaving you in a sticky situation.
One way to protect yourself in case the borrower doesn’t hold up their end of the deal is to have provisions in the contract that allow you to take back the property without having to go through a lengthy and costly foreclosure process. Deed in lieu of foreclosure is one such option where the borrower voluntarily gives up the property to avoid foreclosure, but it’s not always straightforward.
My main worry is ending up in a worst-case scenario where I have to foreclose on the property and lose out on all the money I invested in fixing it up. It’s a real nightmare to think about all that hard work going down the drain.
So, I’m curious to hear from other note holders out there—what are your experiences with seller financing and dealing with borrowers who may not perform as expected? Any tips or insights would be greatly appreciated.
In the end, it’s all about finding a balance between protecting your investment and making the sale work for both parties. It’s a delicate dance, but with the right precautions and a solid contract in place, seller financing at 0