One unique (and creative!) way to get a deal funded that I absolutely love is through Owner Financing (also called Seller Financing).
In a nutshell, Owner Financing is simply that – instead of the buyer getting a loan to buy the house, the seller himself provides the financing to fund the purchase.
This is done when the buyer has difficulty securing a mortgage or getting approved for a loan (mostly because of strict lending rules etc) – but is seen as “financially able” to buy a house.
Here’s how this works:
The seller and the buyer execute an agreement that provides for an agreed upon interest to be put on top of the property’s asking price, a payment schedule and possible penalties for failure to meet terms.
For example: The house is agreed to be sold and bought for $100,000 with a X% interest, payable in 5 years with a balloon payment at the end of the term.
The idea behind the balloon payment is that the buyer should be able to refinance by that time or pay it off with cash possibly.
After the agreement is finalized, the buyer then send his monthly mortgage payment to the seller, who, not only makes money out of the sale of the property, but also profits from the interest rate.
Owner Financing is quite uncommon because most sellers think it’s risky. Moreover, most sellers usually need the proceeds of the sale in order to buy their next home.
What most sellers don’t know, however, is that the loan can be sold to another investor – in which case, the buyer simply makes his monthly payments to the new owner of the loan. It is common practice in these instances for the initial loan terms to remain unchanged.
While, Owner Financing may seem a bit complicated, more and more sellers are beginning to get sold to this idea especially if they’re quite motivated to get their houses sold quickly and this is actually one of my favorite ways to sell houses as an investor because it is generates both large sums of cash with the down payment and nice residual cash flow without all of the headaches of a rental property. Sort of like the best of both worlds 🙂
Of course this also benefits buyers, especially those who can’t get (or don’t want to get) traditional funding.
Knowing the basic mechanics of Owner Financing can surely be a great addition to any investor’s toolbox and in order to help you out, I’m going to do something I’ve never done, which is give you a sneak peek into one my private members training videos from the F7XFactor.com.
The F7XFactor.com is a Real Estate Training site with over 100+ Training Videos that covers, in depth, the 7 Fundamentals that it takes to be successful in Real Estate. We also have tons of Forms, Interviews, Live Event Replays and a whole lot more, so be sure to check it out, www.F7XFactor.com.
Anyways, I think you’ll really enjoy this video if you’re interested in Seller/Owner Financing, and if you do, please post a comment below let me know.
All the best,