Owner Financing in Punta Cana for Sellers
Owner financing or seller financing is a creative way to sell a property that offers numerous benefits than simply selling outright. When you finance a property through owner financing, you, the owner of the property becomes, in essence, the bank. Much like a traditional mortgage, with a bank, you would receive a down payment and then, depending on the mortgage terms, receive monthly quotas, with interest, until the balance is paid.
Owner financed properties are more common than you may imagine in Punta Cana but are generally hard to find. We specialize in these types of opportunities because we have a deep understanding of creatively financing real estate and it’s one of the first questions we ask potential sellers. Since many home owners in Punta Cana own their property outright, there’s many candidates in the market.
Why sell with owner financing?
Stand out from the crowd – If you’ve ever looked to see what’s for sale in Punta Cana, it’s like an endless rabbit hole. There are hundreds of condos, villas and new construction offerings; everyone pulling potential buyers here and there to consider their opportunity. It’s a crowded market and one of the best ways to stand out is by financing the sale of your property. One of the biggest hurdles potential buyers face is financing. Banks in the U.S., Canada or Europe, for example, will not finance a vacation property in the Dominican Republic because they have no recourse to take the property if non-payment occurs. This leaves buyers with local Dominican banks who are notoriously slow and stringent in their approval process. Offering to hold the mortgage on your property automatically shoots your listing to the top and drastically cuts the time to sell your property.
Make more with passive income – Let’s say your condo in Punta Cana is worth US$175,000. You get lucky with full asking price and the condo sells. Now you have $175,000 cash and you have to figure out what to do with it! Yes, a good problem but a problem all the same. But what if you finance the sale? For arguments sake, we’ll say 30% down, 5 years at 7% interest. That lump sum of $175,000 becomes a passive cash flow of $2,426 for 60 months, totaling nearly $198,000. And the longer you stretch out the term, the more you make in interest. If you don’t need all the money right away, holding the mortgage offers passive monthly income that totals more than selling outright.
Lowering your risk with title – When offering owner financing, in the Dominican Republic, the title typically stays in your name until the debt is paid off. A lien is placed on the property so you, the owner, cannot resell the property to someone else. This lien gives the buyer full rights and privileges to use the property and pay off their debt in good faith. If they do not pay their debt in good faith the foreclosure process is much simpler since the title is still in your name. Proof of default is presented to the Dominican courts and the lien is removed, returning the property to your full possession, lien free. In any case, it’s important to note, this is a lawsuit that take months to complete. So, in reality, it’s always better to avoid the court system and come to a mutual agreement – but the legal process in always in your corner if needed.
Lowering your risk with a down payment – Banks typically take a down payment of 20% but these are financial institutions who perform a thorough vetting process, with underwriters, to approve a mortgage. As a single owner, you don’t have these tools at your disposal so you lower your risk with a large down payment, typically 30%-40% of the purchase price; and possibly up to 50%. This large down payment, coupled with title still in your name, helps keep the buyer honest; because if they default they will lose the down payment, any monthly quotas paid, and the property.
The main parts of any owner financed deal are: purchase price, down payment, interest rate, loan term and amortization. Let’s look at each, individually, when purchasing property in the Dominican Republic.
- Purchase price. Like any real estate deal the most important term is the purchase price. One great aspect of an owner financed property is the numerous other terms to negotiate that can help you mold this sale into the best deal possible.
- Down payment. A typical down payment will be higher with an owner financed property than with a bank. Down payments normally range anywhere from 30%-40% of the purchase price and can even go as high as 50%. A large down payment is the most important way for you, the owner, to lower your risk by holding the mortgage. It helps keeps the buyer honest and, if a default does occur, the owner keeps the down payment and gets the property back.
- Interest rate. Normally a property owner will require a higher interest rate than a bank. Remember that a bank is a large financial institution and you’re just a single person. Although interest rates do change, at the time of writing this article, typical owner financed deals in Punta Cana carry an interest rate of anywhere between 6%-9%. Depending on the other negotiated terms, your deal could fall on the lower or higher end.
- Loan term. The loan term or pay off period is typically between 5-7 years. Seller financed deals are almost always considered short term but that’s not written in stone. You could easily turn your property into a long term cash flow, and make more in interest, by extending the term.
- Amortization. The loan amortization dictates what the buyer’s monthly payments will be. In Punta Cana, owner financed mortgages are normally fully amortized, meaning the loan will be paid off, in full, at the end of the term. A fully amortized loan will always result in higher monthly payments but a partially amortized option or even an interest only option can be negotiated with the buyer.
Offering your Punta Cana property with the option of owner financing is a great way to stand out from the crowd and get your property sold quicker. Even if you end up selling the property outright, offering the option of seller financing is incredibly attractive to potential buyers. Also, via interest and quotas you can create a passive monthly income that will last for years and put more money in your pocket than selling the traditional way. And as previously mentioned, the terms of an owner financed option allow for a more in depth negotiation that, often times, results in a better deal than a traditional sale. Maybe you get more on the purchase price but a lower interest rate, lower down payment and longer term. Maybe you get a reduced purchase price for higher down payment, higher interest rate and shorter term. Maybe you get the asking price but you agree to a partially amortized balloon loan and postpone the lump sum you receive to a later date.
With owner financing, in Punta Cana, there’s many ways to cut a deal just like there’s many ways to skin a pineapple!