Seller Financing, a Great Source of Funds


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Seller financing is one of the best sources of financing for real estate investments. Since banks aren’t lending nearly as much, seller financing allows individuals and real estate investors to purchase properties with greater ease. Income properties run down properties, etc. beat-up properties that we want to target. If sellers want to sell right now, many times they have to hold the financing, which is good news for you. Sellers are more willing to try creative financing arrangements, especially in slow or low economic situations.

What is it?

Seller financing is an arrangement where the buyer borrows the money for the sale from the property owner. This avoids the need to have great credit or to get approval from a bank. Sometimes this purchasing arrangement is known as owner financing or a purchase-money mortgage.

How to Explain It

Traditional home sales give the seller all of the money upfront from the sale. This also leaves the seller responsible for the capital gains tax. That is the tax on the difference between the amount the house was originally bought for by the seller and the amount it sold for. That can end up being a rather large chunk of money.

In a seller financing arrangement, the seller receives a down payment for the home. In addition, he sets the terms and conditions for loan. This includes the length of the loan, the loan amount, and the percentage of interest. Instead of the seller having to pay taxes on the entire amount of the home, he is only responsible for taxes on the amount he receives during the year (i.e. the down payment and the mortgage payments).

Here is an example for skeptics:

A $55,000 is seller financed. The terms of the loan are for 15 years at 5% interest. The buyer puts $5,000 down. The monthly payment is $300. Every year the seller would receive $3,600 in mortgage payments. After 15 years, he would receive over $59,000. This actually makes the seller an extra $4,000. In addition, the seller would only pay taxes on the $3,600 he received every year in payment. This amount is much less than paying for the entire $55,000 at once.

HomeVestors is a national home buying franchise with over 15 years of experience buying and selling as is properties. They have a large variety of real estate investing and real estate franchise opportunities available to help a real estate business grow. Visit www.HomeVestorsfranchise.com for more information.

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