Creating great investment deals require innovative thinking. Successful real estate investors don’t wait for deals to just fall into their laps, they create them! The goal of most investors is to get more deals done, faster and for less money.
Let’s look at a different perspective on seller financing. Most people think that someone only uses seller financing when their credit is bad or they can’t get financing through a major lender. While this can be the case, it is not always true.
When you are growing your portfolio at some point you will get “tapped out” on the number of mortgages you can have per the banking guidelines. While you want to maintain a fiscally responsible strategy, this option can be just one of the tools in your toolbox.
With an individual seller you have opportunities to negotiate everything from down payment to interest rate and terms. Employing good communication skills with a win win perspective can create a rewarding outcome for all.
Benefits to a buyer in using seller financing can include ease of financing, creativity in structuring deals, and financing un-financeable properties. Deals between seller and buyer have great flexibility. Cash flow is a major challenge for buyers so being allowed to bring upfront amounts such as $5,000 to $10,000 instead of the typical 15% to 20% can relieve this stress. Purchasing a normally “un-financeable” property allows the buyer to begin doing the work to bring the property up to financing standards. Then the buyer can obtain financing.
Benefits for the seller include, providing a monthly income, better return on investment, spreading out the tax liabilities, and selling properties that wouldn’t meet stringent financing requirements.
For older sellers getting a big chunk of money all at once is not beneficial. With Certificate Rates one might get 1.5% APY whereas with a seller financed one might get 7%. What if instead you received a monthly amount (including interest) over fifteen to thirty years? This would add peace of mind and a monthly income. Not to mention the burden the seller releases as they go from the “landlord business” to the “note buying business.”
Taxes are also always a concern since these properties would be taxed on the total profit if they sell it free and clear. Remember at this stage of life they are not looking to reinvest they are looking to eliminate the hassle and supplement their income
Remaining open to seller financing as a viable tool for building your portfolio requires you to develop better communication skills. These kinds of deals require creative visioning, education and excellent communication skills. Educate yourself and open your perspective to become the real estate investor you’re always dreamed you would be!
