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Pros/Cons of Seller Financed Loans?

I just attended the Papersource conference and there were a lot of people buying seller financed notes. Is there any pros/cons to buying seller financed notes as opposed to institutional notes?

Great question!

The biggest consideration for Seller Financed Notes versus Institution Notes is the viability of the documentation & the pricing.

As long as the investor who originated the Note was thorough & comprehensive with their underwriting & paperwork you can be confident that the Seller Financed Note is enforceable. Review the complete collateral document package with an attorney before purchasing so you can be sure they dotted every "i" and crossed every "t".

One advantage of Institutional originated Notes is pricing. A Seller Financed Note is typically performing and requires less of a discount to the Unpaid Principal Balance. The seller originated the loan at Par Value and unless they received some points at closing, they typically won't be interested in taking a loss like an institutional lender cleaning up their balance sheet by selling Non-Performing loans.

Although Seller Financed Notes can be excellent investments when properly vetted, we prefer Institutional Notes for the stronger discounts, wider variety of asset types & enforceable documentation.