For those who have never dealt with owner financing before, receiving an offer with owner financing is usually pretty confusing at first. Typically when someone sells a house, they use a realtor and they find a buyer who is going to be getting a 30 year bank mortgage. When you are selling a house that is not financeable or has special circumstances, this may no longer be possible. Most people in this situations sell to cash buyers at a significant discount. I am going to go over some of the different ways that you can sell with seller financing and how you may be able to use it to your own advantage.
For landlords who love to receive monthly income but are too burnt out to renovate another house and risk having more bad tenants, long-term seller financing is more common than you may think. With this type of owner financing the seller will typically sell the house to a new landlord and the seller will now receive monthly mortgage payments as opposed to receiving monthly rental payments. The property and the responsibility of maintaining it and renting it out will now transfer to the new buyer. The seller would then have a mortgage on the house. The length of time, monthly payment size, and down payment size are all negotiable between the seller and the buyer.
The main benefit to the seller is to be able to continue to have long-term income stream which is secured by a rental house. The benefit to the buyer typically is easier financing with less junk fees than when dealing with a bank.
A similar approach to owner financing would be called a lease option a.k.a. rent to own or lease with the right to purchase, and other similar names. This is like what we just went over, except for the fact that the house is not actually being sold. In this situation the owner is renting the house to the investor and selling a right to buy the house at a future date for a set price.
The investor is usually responsible for the minor maintenance and repairs, but you as the owner are still responsible for any big problems that arise since the house is not yet sold. For the owner, this is sometimes beneficial to retain ownership of the house for tax benefits such as depreciation.
If the investor were to stop paying, the owner is able to evict him and is free to rent the house out to someone new or to sell the house. For the investor this may be a great way to get into a rental property without having to get a mortgage right away.
One more very common form of owner financing is selling by having the buyer take over existing mortgage payments. If you have a mortgage with a low monthly payment, this is going to be attractive for buyers of rental properties. If the buyer is able to take over your existing payment they may be able they may be willing to pay a higher price in order to do so.
If you owe $100,000 on your mortgage and you were able to sell the house for $120,000, the buyer will now give you $20,000 cash and make payments on your existing mortgage of $100,000.
Because there are usually no surveys or appraisals, selling with owner financing is typically much quicker than selling the regular retail route.
The other main benefit is simply getting a higher price. Cash buyers will typically be taking out short-term high interest rate loans and will offer substantially less for the house as a result. Since the terms of how you sell your house with seller financing are negotiable, you have to be able to get a higher price in exchange for offering attractive financing terms. For many investors the terms are actually more attractive than the price so this cannot really be a win-win situation.
Although there are many more forms in details are on your financing, these are some of the basics of the most commonly used methods. If you have any questions or interest in these topics let us know and we would be happy to talk to you talk with you more in depth and answer any questions you may have.
When it’s time to sell your house, give us a call or fill out the form online at https://www.ctiproperties.com/contact. We would love to work with you!