Real Estate Notes and Land Contracts

Real Estate Notes and Land Contracts

Real Estate Notes and Land Contracts

Real estate notes and land contracts are used to document the sale of houses, commercial properties and vacant land. Other common names for these contacts include real estate receivables and seller carry back trust deeds. Seller carry back refers to a type of private financing where the seller acts as a lender. Realty note holders can elect to provide full or partial financing to expedite the sale.

Note receivables are valuable assets that can be sold to private investors. When drafting contracts is it important to be aware of strategies which can maximize cash flow and return on investment.

Sellers who provide private financing to help buyers purchase the property or obtain financing for the balance of the sale price should obtain a minimum 10-percent down payment for residential properties, and 20- to 30-percent for commercial properties. In most cases, obtaining higher down payments can potentially minimize risks because buyers do not want to lose their investment money.

Seller carry back financing typically extends for two to five years and up to seven years on commercial properties. It is best to keep seller carry back terms as short as possible. At the end of the term, buyers must obtain financing through a conventional mortgage lender.

Oftentimes, buyers who require seller carry back financing are credit-challenged, so it is crucial to obtain a current credit report. Individuals with low FICO scores are not always high risk, but sellers must protect realty assets through iron-clad real estate notes and land contracts.

When entering into seller carry back mortgages it is best to work with buyers whose FICO score credit rating is at least 600. This is particularly important if planning to sell the realty note to a private investor.


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