What services if any do you normally use to qualify a potential seller as far as credit and background checks are concerned?
There are two which I use:
First. is for the buyer to demonstrate his ability to pay the contract you are offering…so look at his employment, tenure, and ytd paycheck stubs.
Second, the amount of down payment will typically (for me) determine if this deal will succeed or not. With too little down, when the buyer runs into a bump in the road, he will walk…not a big loss for the buyer! But with a large down payment (only you can determine the right amount for your own barometer of success) and when the bump in the road happens, he won’t likely walk.
With the buyer stretching a bit with down payment funds that he might deplete his savings/retirement/etc. or borrow from employer or family, he is likely to stay when times get tough.
Hope this helps.
Seems to be some solid advice, do you ever run credit checks and or background?
In nearly 400 transactions, I’ve not run credit checks nor background checks. I solely look at the buyer’s ability to pay and how much he has to put down, along with my God Given gift of intuition…which has served me well over the years.
I’m not saying that there have not been issues and problems along the way…it is how you deal with those bumps in the road that determines your success.
And think about this…if a potential buyer could pass a background check and has excellent credit…why would he pay a premium for owner financing?!! Typically, he would not…he would just pick out the best and cleanest deal and go to the bank and get a new mortgage.
With the manipulations in the markets back in 2008, most people will have an issue on their credit report and/or their background check…I say…get over it and make the deal work for all parties…then move on to your next deal.
Hope this helps.
Rob, that’s all so true.
It’s been a long time since I’ve run a credit check, and frankly I’ve never run a criminal background check.
I find, too, that the prospects with good credit, and/or no hiccups in their background, won’t give me what I want. They can find ‘it’ easier and cheaper just about anywhere else.
Meantime, I get higher rents, longer leases, bigger deposits, higher prices, and bigger down payments from people with credit issues.
I rarely have meaningful problems with people who give me big deposits and big down payments …they have something to lose/gain.
I would say that most of the owners, managers, and seller-financiers are conventional hacks, and show it off by making leasing and financing decisions, based on credit checks.
I mean, who did people consult before TRW existed?
These same hacks believe that clean credit is the be all, and end all, to low vacancy and credit losses.
No. Big deposits and big down payments are.
I talk to investors all the time that ask about evictions. I usually suggest giving the tenant his deposit back, in return for the possession and the keys. That’s when they tell me they only have like $150.
So, what then? I recommend paying the deadbeat what it would cost for a full-on eviction, IF they agree to be out by “Friday,” with the place clean, even if it’s an out of pocket expense.
It’s the same with a defaulted buyer. Assuming he didn’t put up a big down payment, the seller could weigh the cost of foreclosing, against giving the ‘deadbeat’ a majority of that money, as “cash for keys.”
Of course, I use other legal leverage that encourages any defaulted buyer to leave without a fight. That’s for another post.
You need to sort out who is really interested and who is just looking. Potential buyers may show interest in your business. The important factor of qualifying buyers is finding out if they have the money to buy your business.
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i agree with most everyone here… i have not employed a service to qualify candidates…
my criteria for approval. Can they afford down payment we are asking for?
Can they handle the monthly payment (meaning their gross income is a minimum of 3x the monthly payment)
lastly do they have a good work history… (have they stayed employed)
In my experience, if they have a down payment that is suitable to me, and they can verify a paycheck to demonstrate their ability to pay, then I typically move forward.
If and when it defaults, although it is a bit problematic, it presents another opportunity to profit from obtaining a new down payment and a new contract.
Turn lemons to lemonade! Solving problems in this business will make you more profit.
Hope this helps.