From the prospective of the buyer, what are pros and cons of obtaining a property through an installment sale rather than a conventional loan?
I have an opportunity to do so, but am very concerned that title does not transfer until payments are complete. Does this mean on a 15 year note, I don’t own the property until the mortgage is paid in full?
That’s a big red flag in my mind; are there pros to this arrangement?
Thanks,
Tim
That’s a great question.
It all comes down to trust. Is the seller a professional that’ll do what he’s obligated to do, or not?
As a professional, I do not buy on installment notes where I don’t get the deed. Not having the deed complicates my exit strategy. It can be done, and protocols can be standardized and developed, but I have one exit strategy that includes first getting the title, so that I control it.
For example, let’s say the seller dies halfway through our transaction, and I’m ready, willing, and able to pay off the note, but the family isn’t willing to honor the obligation, and refuses to accept the payoff, and/or transfer the deed. What then? Sure, there’s an answer, but I’m asking.
Let’s say time is of the essence with a buyer I have in hand, who’s paid me for four years, and now I can’t deliver the title, because the family is a bunch of redneck Gypsies? Forget all that. I want the deed.
In the case where the investor’s credit looks like a Rocky Mountain landscape, then maybe we could escrow a notarized deed back to the seller, to be recorded in the event of default? Of course, this arrangement would have to follow to a subsequent buyer in the event of default, so that the unwinding goes all the way back without a hitch.
Meantime, as a professional, I do not transfer titles to my consumer/end-user/buyers until they pay me off in full. Why?
Because it’s way less risky for me, and I make more money financing buyers with insufficient credit than I do with ‘good’ risks.
In the event the buyer is good risk, by putting up more than 10%, for example, I might consider transferring the deed, before I got paid off.
FWIW
Thanks Javipa!