So what’s all the hype? Here are ten advantages to using the seller carry back to buy or sell real estate.
1. Shorter Marketing Times – Properties marketed with “Owner Will Finance” will draw a greater response rate and generally sell at least 20% faster than properties requiring conventional financing.
2. More Buyers – With many lenders’ tightening their approval process, the seller carry back enables a greater number of buyers to purchase and finance a home.
3. Speedy Closings – Without the red tape of a conventional mortgage lender, a real estate transaction can close in as little as two to three weeks.
4. Maximize Selling Price – The seller has an opportunity to realize full market value for a property when providing financing. This is viewed as a sales concession in many markets
5. Reduced Restrictions – Restrictive lending requirements don’t apply providing greater flexibility when it comes to the buyer’s credit history, down payment, debt to income ratios, and other underwriting criteria.
6. Fewer Costs – There are no expensive loan costs to worry about. A buyer can put the money they save on origination fees, points, underwriting fees, mortgage insurance premiums, and junk fees towards the down payment and building equity.
7. Interest Income – The seller is able to collect long-term interest since they are essentially acting as the bank by extending terms to the buyer. On average a buyer will pay back 2 to 3 times the amount of the mortgage on a 30-year term as a result of interest.
8. Installment Sale Tax Deferral – When property is sold at a gain and subject to tax there can be an opportunity to delay a portion due when reporting under the Installment Sale Method (Refer to IRS Publication 537, Form 6252 and speak to a qualified tax professional for further details).
9. Secure Asset – The balance of the purchase price is collateralized by the property. If the buyer stops making payments the seller can take back ownership of the home.
10. Liquid Asset – The seller owns a liquid asset, which is just a fancy way of saying somebody will purchase the note, mortgage, trust deed, or contract on the open market. Many sellers elect to sell their future payments to a note investor or note buyer for cash today rather than payments over time.
Seller financing offers a creative solution to financing real estate but there are some risks. For the flip side of the coin be sure to read the The Downside of Owner Financing – Disadvantages to Providing Financing. It also pays to consult with qualified real estate, tax, and legal professionals to make sure today’s solution doesn’t turn into tomorrow’s problem.