Written by: Dr. Phillip Hearn, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Seller Financing is an attractive option for buyers looking to finance their purchase without the use of traditional lenders. This type of financing provides more flexibility, allowing sellers and buyers to come up with mutually beneficial terms that work best for them.
Seller financing is a straightforward and beneficial loan agreement between buyer and seller. Rather than going through an intermediary, the parties address their finances directly using what's referred to in real estate as "owner financing" or “bond-for-title” ‒ thus simplifying the process for both involved.
Reduced marketing
In a slower real estate market, rather than reduce the price of the property to attract buyers, agents may consider offering financing instead. Buyers can potentially pay full price for properties and enjoy benefits such as avoiding expensive loan fees or spending points on origination costs.
Increased inventory
With owner financing, the seller enjoys a greater potential for sale due to an expanded inventory of purchasers. Currently in America, 40% of buyers can't obtain bank loans ‒ increasing the likelihood that they would consider more flexible terms from a private lender/seller. This is evident through increased interest after listing "Owner Will Finance" or "Easy Terms".
Reduced closing times
When you offer owner financing, the time to close a transaction is shortened significantly. As compared to conventional lenders who can take up to 6-8 weeks for closing procedures, using a reputable title company and seller finance will allow buyers and sellers alike to complete contracts in as little as 2-3 weeks. This timeline benefit comes with less paperwork ‒ perfect when speed matters most.
Strategy for hard to finance properties
Investing in hard-to-finance properties can be a great way of increasing returns, as these properties often require a lower initial cash outlay. Investors capitalize on this by purchasing the property at a reduced wholesale price and then selling for more with easier financing terms in place. This strategy is beneficial for any kind of complex real estate such as mixed use structures, land or mobile homes, non-conforming buildings or other low-value assets.
Interest income
Investing in real estate has the potential to build wealth and generate interest income over time. With owner financing, sellers can earn additional revenue ‒ beyond the sale price of their property ‒ without giving up ownership rights. For example, a $100,000 mortgage with a 9 percent APR paid back monthly will produce an extra $189k+ (over 30 years) in addition to what was initially loaned out.
Bottom line
Seller financing can be an attractive option for buyers and sellers, but consulting a professional to ensure the legal transaction is properly recorded is critical. Financial Center offers free consultations and is an excellent source to grow your business model. Additionally, discussing terms with note investors provides valuable insight into structuring techniques that will maximize pricing should you decide to convert payments into cash by assigning your note or contract.
Dr. Phillip Hearn, Executive Contributor Brainz Magazine
Dr. Phillip Hearn is a master in entrepreneurship, real estate investing, and motivational inspiration. Despite setbacks from a problematic childhood, Hearn learned the value of investing in himself and capitalizing on his strengths. He has since specialized in helping others discover their full potential, personally and professionally. He founded Mid American Capital Holdings, LLC, an acquisition focused company. Current subsidiaries include Phillip Speaks, specializing in public speaking and coaching; Financial Center, operating as a capital broker to help businesses grow their operations, and other subsidiaries which continues to expand. His mission: to collaborate as a problem solver to today’s challenges.
