Hi, everybody. My name is Mike Kehoe with Green Street Home Buyers. In this video, I’m going to go over Seller Financing. I’m going to talk about the five different benefits of selling your home with Seller Financing. I’ll talk about the risk factors in Seller Financing, and I’ll just explain it in a nutshell, so you walking away from this video will know whether it’s a viable option for you or not.
Selling your property is obviously a big financial decision. Most of the time buyers are going to be paying for your property via bank financing called a mortgage, or via cash. However, there’s a third strategy called Seller Financing, also known as Owner Financing. It’s a more creative, flexible solution that might be better fit for you than selling your house cash or via a mortgage to your buyer. In a traditional transaction, the buyer borrows money from the bank to pay the seller off at closing. The buyer then has to pay the bank back over agreed upon period of time via a mortgage. With Seller Financing, the seller will finance the property for the buyer and act as the bank. The seller and the buyer will agree upon a period of time for the seller to be paid back by the buyer in this situation.
It’s just like a mortgage from the bank, but the seller is financing a property instead of the bank. Reason number one is price. Typically in a cash or an off-market or for sale by owner transaction, buyers are going to want to pay 60 cents on the dollar. If your property is worth $200,000, they’ll probably want to pay $120,000. With seller financing, you have the upper hand as the seller because you’re willing to give them terms, so you can usually ask market value or even a little more sometimes reason.
Number two is interest. Not only will you receive a higher purchase price, but because you’re acting as the bank, you’ll be able to charge interest on the monthly payments. Reason number three, and probably the most powerful is a steady stream of monthly income without having to have the headaches of being a landlord. Whenever you do a seller finance deal, the buyer has to take care of the taxes, keeping up with the property, collecting rents, all of the things that come along with being a landlord that most people don’t like.
Reason number three is the most powerful for us because it creates cashflow for yourself where you can spend it on your monthly expenses or go on vacations with, where you don’t have the headaches of taking care of the property. Reason number four is the tax advantages I have to preface here, I’m not a CPA, so I’m not giving out tax advice, but you’ve probably heard the new administration will be upping capital gains taxes on the sale of assets. If you sell your house cash today or via traditional transaction with a mortgage, you’ll have big tax bill next March if you have any capital gains from the sale of your asset. With seller financing, if you spread it over 10 years, your capital gains taxes will be spread over 10 years as well and potentially keeping you a lower tax bracket.
Reason number five is that you can sell as is. You’re not using a bank, you’re not using a realtor, so there will be no contingencies. There’ll be no showings. There’ll be no appraisals with seller financing so you can sell very quickly. Reason. Number six is you have first lien position, just like a bank has in a traditional transaction. You, in the seller financing transaction, have the first right to foreclose on a buyer if they stop making their monthly payments. The property in this situation is the collateral.
Seller financing isn’t for everybody or every situation, so let’s talk about the drawbacks. Drawback number one is you don’t get all the cash up front when you sell the property. If you’re trying to sell this property to buy another property with its profits, seller financing won’t be a great option for you. Seller financing is a trade-off of getting more money over a longer period of time than getting less money up front. Drawback number two is the risk of default and the headache of foreclosure. As we’ve already discussed, you have first lien position so you have the right to foreclose on a buyer if they stopped paying you their monthly payments, but foreclosure can be a headache. This goes without saying, but picking the right buyer is extremely important with seller financing. You need to make sure that you do your due diligence upfront, so you don’t have any headaches later.
Please reach out to Green Street if you have any questions about seller financing. We buy properties, cash and via seller financing. If you give us a call, we can have an open discussion about your goals and we can find out what strategy is right for you and your situation. Have a great day and thanks again for watching!