For the past several weeks I've been researching and learning seller finance options.
Would love to hear some creative finance stories from the BP community utilizing seller financing. The market is pretty hot in my area and I'm just wondering why a seller would consider carrying the note.
Thanks in advance!
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I actually just completed a seller financed deal and even though I gave them a down payment, they required none. Or rather they changed their minds...The first time I met the couple (I told my handyman to keep an ear out for landlords that wanted to sell as he worked on other properties, he hooked me up with them and I called them and invited them to lunch), they told me they want to do seller financing (it was a relief not to have to convince/talk them into it. They already knew about it and had been on both sides of the transaction. They told me they would require a substantial down payment. I didn't panic, I came prepared. As we were finishing up, I took out my last 4 paystubs and handed it to them and pulled up my >800 credit score and I could tell they were blown away. They said well clearly you don't need the money so you will pay us. I said yes I make more than enough, I just love real estate and yes you will get your money first, always.
The next day she called me and said we can do the deal and since I'm a responsible borrower and make a good income, I don't have to give them any down payment at all! I thought YASSSS!!! I'm pretty low on cash (paid my cash for my 1st duplex...never doing that again) so I'm only looking for seller financed deals where they want little or no money down. Brandon Turner always talks about an unfair advantage and my income is probably mine.
The thing to watch out for is that some think they are doing you a favor, they will ask you to pay a premium for the property and also want a high interest rate. This couple didn't but I see them on Craigslist all the time. Seller financing does not automatically make a deal good, it still has to pencil out.
I told them from the get go that I don't pay market value and I expect a discount and they said sure be we won't "give them away." I said no problem. The next meeting at Starbucks, I took my laptop and pulled up the BP calculators (I believe in full transparency) and we kept working until everyone was happy with the purchase price and terms. Actually, no one was happy but we were content and comfortable with the deal.
@Anton Taylor I try to keep things as simple and and stress-free as possible. So I look for sellers who bought recently and then ran into financial problems. A common scenario here in Canada is a couple who bought their first house within the last year and put 5% down, wrapping a 3.85% mortgage insurance fee into the loan. After closing costs, they literally have zero equity. Then they split up, or one (or both) of them lost their job. Now they can't afford their payments. What can they do?
1. Most of them will call the agent they used to buy the house, who will inform them that they will have to pay the commission out of their own pocket unless they can somehow manage to sell for above market value. If the market is REALLY hot this might work.
2. After talking to their agent some of the adventurous ones will try to sell the house themselves, figuring that if they don't have to pay a commission it will be easier to break even. This almost never works because most buyers of FSBOs are looking for a discount.
3. They can borrow money from family/friends and hope their financial situation turns around.
4. They can let the house go into foreclosure and destroy their credit.
Or, option 5: They can sell to me for what they owe. I'll take over their mortgage, cover the closing costs, and take care of the property until either my occupant or I refinance the mortgage into our name. Here in Canada most mortgages have to be 'renewed' every 5 years, so there is an end date in sight for these sellers, which they really like.
Typically and owner in your area would be selling selling a property that really outside of the box to have to do that in this real estate market.
Thank you for the responses. @Doug Pretorius reading some of the forums many state if the house isn't owned free and clear the banks will use the due on sale clause written in most mortgages.
How do you get around this? Is this very unlikely to happen?
@Anton Taylor The bank has the right to call the loan due, but that doesn't mean they will exercise that right. In everyone's (not just mine) experience who does these kinds of deals, it is extremely unlikely that you will ever get a single loan called. There's a podcast here, can't remember who the guest is, but he estimated that it's maybe 1 in 10,000.
There's one possible exception. If the US government suddenly got out of debt so interest rates can go back up, then banks would start looking for these transactions and call them due so they can renew the debt at a higher interest rate.
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