Seller Financing: An Idea Whose Time Has Come
Seller Financing/Owner Carry is one of the oldest and most trusted techniques in the country for selling real estate and businesses. It essentially means that you will act as the bank when the bank won’t. It’s an idea whose time has come because of tighter lending qualifications and a slowing real estate market. Many buyers are in the penalty box due to the newly enacted Dodd Frank legislation or credit issues from the past real estate bust. The buyers have mattress money, but do not fit in the typical lending box.
Normally to sell a house quickly, the house should be attractive and so should the terms. By fixing your home to present it in the best light and offering flexible terms as well, you have, in fact, given your buyer an “offer they can’t refuse.” By selling your house for an all-cash purchase only, you limit your market. If you’re flexible on the financing terms of the property, you double your pool of buyers and therefore the demand for your house. Furthermore, if your house is not particularly nice or unique, it may take you some time to even find an interested buyer. Since you are competing with all of the other houses for sale, you may need to spend thousands of dollars in paint, new carpet and landscaping just getting the house ready for the market. Even after the improvements, there may be lender required repairs. With seller carry, you can avoid most of the fixup issues.
It’s only in the last few years of easy financing that the idea of carrying paper got all but lost. The truth is that seller financing has been around for years, and in some areas of the country, seller financing has always been and remains a very popular strategy for disposing of real estate, especially in the market that is evolving today.
In the current economic climate, more and more people will once again turn to the installment sale to get transactions consummated. Business owners are much more familiar with the idea of carrying paper, simply because there has never been an ample and dependable supply of financing for the purchase of businesses. The underwriting guidelines are different, but single family house notes can be bought and sold just like real estate/business notes. This gives the note holder the option of cashing in when they would rather have all cash verses monthly mailbox money.
Seller Financing can be used to quickly and inexpensively sell any property for full or more than market value regardless of market conditions.
When an escrow is not dependent on third party lending, the transaction is simplified tremendously. It’s common for these types of transactions to close in 7 to 14 days. So, when a seller decides to offer financing and gets lots of offers, they can close sometimes 4 times faster than if he waits for the buyer’s financing to come through. The Seller can use the installment sale to close the deal and then either keep the note as a nice investment, or sell it immediately for instant cash.
Here are some of the benefits of Seller Financing:
- Defer capital gains
- Maximize the sales price by offering terms
- Keep your equity working for you, often at interest rates higher than a bank CD
- Get a good cash down payment now
- Collect hassle-free monthly income for years
- Your note is secured by a property you understand and whose value you know
- Sometimes you get more each month than you could collect in rent
- Never worry about dealing with tenants or maintaining the property
- Pay no more property taxes or insurance
- If the buyer stops paying, you keep everything and get the property back
- If you or your heirs ever need money, you can sell all or part of the note for cash