As an investor, the idea investment is one that I can buy, sale, and make a modest profit with as minimum hassle as possible.  I imagine that this idea is basic with all investors.  Yet I don’t understand why more and more investors are not taking advantage of the current market by selling their investment properties with seller financing. 

Seller financing is my most preferred exit strategy for homes that I purchase via cash or subject to.  Seller financing offers more advantages to the seller and buyer.  Not to mention that the current market is full of wanna-be buyers that would like to take advantage of the income tax credit before November 30, 2009 but can’t obtain financing. 

First you need to know what is seller financing (owner financing or seller carry back)?  Seller financing is when the seller agrees to lend money to the buyer to purchase and close on the property.  Essentially, the seller plays the role of the banker and carries back the loan.  Seller financing is more attractive in a buyer’s market, similar to the one we are in today. 

Investors should consider selling their investment properties using owner financing vs. renting them out as an exit strategy.  I’ve been a landlord and it isn’t fun.  The problem with being a landlord, besides repairs, is management.  Unless you have a qualified and proficient management team, you property will likely be cash flow poor.  I ran into this problem and from doing an analysis, I was able to see that if I sold the property using seller financing, I would net more cash upfront and each month while receiving a lump sum payment when the balloon became due.   

Here is an example of a Seller Financing deal:
Current ARV:                    $90,000
Purchase Price:                 $55,000
Repairs:                           $10,000
Sell Price:                         $100,000
Down Payment:                 $8K
Finance terms:                  $92,000 at 10% amortized 20 yrs w/ 10 yr balloon
Monthly payments:            $887.82  (This is principle & interest to seller)
Total Payments:                $106,538 in 120 months
Balloon payment:              $67,182 in 10 years.

Total Invested:               $65,000
Total Return:                   $173,720

ROI is  167% (these figures are approximate)

Selling your investment property with seller financing offers a number of benefits to you as the investor.

• You have a larger pool of potential buyers:  If tough for buyers to qualify for conventional financing.  The self employed aren’t capable of navigating all the lending guidelines. 
• Seller financing may result in a higher sale price.  Offering seller financing may put sellers in a position to ask full list price or even more.
• Seller financing may offer tax breaks.  While tax consequences depend on specific circumstances, a large capital gain may result in a big tax bite.
• Seller financing provides recurring income.  Mortgage payments that come to the seller may increase his or her cash flow, resulting in spendable income.
• Seller financing may result in a higher interest rate.  Seller financing can carry a higher rate of interest than a seller might receive in a money market account or other low-risk types of investments.
• Seller financing may sell a house more quickly then searching for a tenant.  Offering seller financing can help your listing stand out from the pack and move a difficult to sell property.
• Seller financing normally closes quickly then closings requiring conventional funding.   
• Seller financing can be a relatively safe investment.  If you’ve found a responsible and reasonably creditworthy buyer who puts a substantial down payment into the property, the investment should be fairly secure.
• Seller financing usually relieves the seller of tax, insurance, and property management responsibilities. 
• Seller financing creates a mortgage note.  If you form a mortgage note, you can sell it to note buyers for cash.  This is a great source of funds for new deals, emergencies, or other general expenses. 

When you lease out a home, you still have to pay taxes & insurance, make repairs, manage the property, and deal with vacancies.  These task can be over stepped when you sell the property using seller financing, you pass all these things on to the buyer and simply collect a check every month. 

I will be beginning a new challenge in January to buy and sell 5 homes in one month using seller financing as my purchase and exit strategy while making an average of $3,500/deal.   Sign up for our VIP Buyers list so that you can receive more information and be kept up to date on the entire process.

Happy Investing…