As you search for ways to finance your real estate investment deals, it’s easy to become frustrated when you’re turned down from the bank or credit union. You may not have the cash to do an “all cash” offer to the seller.
And even though portfolio loans are a promising strategy for your investment deals, it’s great to have more powerful tools in your toll belt, right?
Some real estate investors get most or all of their deals through seller financing. And there’s a good reason for that.
What is Seller Financing
So, what is seller financing, anyways? To put it simply, seller financing is a case in which the seller of the property acts as “the bank” and agrees to accepts all or part of the purchase price in monthly installments.
This becomes a great scenario for real estate investors because unlike banks, the terms of the deal are completely negotiable. When you, the buyer, and the seller agree on the financial terms that work best for both parties, you sign a contract and its off to the races.
The seller may want some cash down from you and then agree to long-term financing for the remainder of the loan. Asking 10 percent to 20 percent down is reasonable from the seller.
Sellers will usually consider this type of financing if they own the property free-and-clear. This means they have no existing mortgage on the property – they’ve paid all loans off.
If the seller does have another loan on the property and then sells it to you, the seller's loan must be paid back immediately or else the bank may foreclose on the property.
Why Consider Seller Financing
The reason investors love seller financing is because you can usually get great interest rate and terms, provide a lower down payment than banks will require, and you may be able to forgo credit checks.
Still, structuring a good seller financing deals requires strong negotiation skills and some working knowledge of contracts and real estate financing.
This type of financing can be used for non-owner occupied or owner-occupied real estate properties.
Whether you are doing a rental property, and on some occasions a fix and flip or live-in flip deal, seller financing can work.
Why Motivated Sellers May Love Seller Financing
There are several scenarios that bring sellers to a place where they’ll entertain seller financing.
Cash flow brings peace of mind.
Some landlords worry about finding the next deal once they sell their current home or rental off to a buyer. They wonder where they’ll put the money. So when they choose to take a down payment from you and take the monthly positive cash flow from your seller financing deal, this is a great option for them.
Seller Tax Implications.
If a property owner bought their home in a good community 25 years ago for $100,000 and homes in the area appreciated at 5 percent a year, then the current price would be $338,636. That is a capital gain of over $238,000 recognized in one tax year!
If the property owner makes a high income then this could mean a tax burden of 24 percent of the gain based on 2020 tax rates. This means a tax bill of $57,120!
A CPA may advise this seller to instead, owner finance the deal to you, the buyer, for a longer period of years to stretch out the capital gains tax burden, and earn some interest to off-set the bill as well.
Stress-free monthly income stream.
The final benefit to the seller here is that they’ll get to enjoy a monthly positive cash-flow check without the burden of leaky toilet calls. You’ll take those calls instead. 😊
Unless you hire Utz Property Management to take care of the job for you!
You can start by scheduling your PROPERTY PROFITS STRATEGY SESSION.
In This FREE 1 Hour Session, an expert real estate investment coach from our team will work personally with you to...
- Examine your current real estate investment portfolio/plans to see what’s working and what’s hurting. Discover where you’re making money and losing it.
- Search for the diamonds in your backyard, the low-hanging profit opportunities that can be made with minor tweaks.
- Diagnose the biggest roadblock to scaling your business fast and profitably.
- Present the best path for tweaking your investment game-plan so you can build wealth faster, with more predictability and stability.
Schedule your PROPERTY PROFITS STRATEGY SESSION today.
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