In the Los Cabos real estate market, like many resort destinations in Mexico, cash has always been “king” and a requirement to buy property here. This is because over the years, the availability of traditional mortgage financing for foreigners has been hit and miss (mostly miss) resulting in a scarcity of lenders offering loans on Mexican properties.
Additionally, the application process for such loans was arduous and time-consuming, the interest rates charged were above US market rate, and often lenders required a lien on your primary home in the states.
So, it’s easy to see why most buyers in this market have always been either fully liquid for their purchase or have been able to arrange their own financing in the states in order to pay cash here in Mexico.
So, if I, as the Seller of my home here in Mexico, have no pressing needs for all of the proceeds of my sale and most likely would deposit all or some of those funds into the bank or some other low yield investment, maybe I should consider seller financing.
Let’s look at some of the many reasons I might want to consider it.
- More Prospects: Since all cash transactions are the norm, traditional listings omit a wide swath of potential prospects for my home. Many well-qualified potential buyers can make a sizeable down payment and simply need some time to liquidate assets in the states or elsewhere or generate the funds to finalize the purchase. So, offering some financing leads to more eyeballs on my listing, especially agents!
- Quicker Sale: With so many more prospects for my listing and so few offering some help with the purchase, I am likely to sell my home more quickly since my property is unique in that regard.
- Higher Price: A purchaser requesting some short-term help with financing has far less leverage to negotiate a price reduction, which means I, as the seller, can demand a full-price offer as a starting point when considering any such offer. The argument that a cash offer deserves a discount absolutely works in my favor. Regardless of where I start, I’m likely to end up at or close to my asking price.
- More Leverage: Additionally, I have more leverage to sell my home “as is.” I am in a far better position when negotiating small maintenance issues, and I might even be able to have the inspection waived altogether as part of the accepted offer.
- Steady Income: Since I am now the lender, I can structure the loan in a variety of ways and earn interest on my money. Most such loans would be mature in 3-5 years maximum. They can be amortized which means I receive large monthly payments with the loan fully paid off over the term. Or I can structure it as “interest-only” with a lump sum due at the end of the term. In either case, I’m earning a better rate than I might earn at the bank.
- Security: As part of the offer, the buyer will pay for both credit and background checks. And just as the banks do in the states, a lien placed on my property, generated at the buyer’s expense and recorded in the public registry at closing, means that I will recover my property in the unlikely case of default. With a large down payment, typically (50% or more), I have protected myself and ensured that the buyer would more than likely fully honor the terms of the loan or face the loss of his or her down payment and closing costs.
So, if I want to sell my home more quickly for a higher price with fewer issues and earn a steady income as part of the sale. I might want to take the lucrative shortcut that Seller Financing might provide.