Is there a downside to only buying seller financed properties when we are just starting out? My goal is cash flow right now, so I would buy and hold all of them, understanding I may not get the “deal of the century” through this method.
Thoughts? Case studies? Links to reference material? HELP!
Yes, you will likely get shorter loan terms and higher interest rates than a bank would provide if you are qualified. If you are not as qualified having owner financed loans will increase your debt to income ratio, which may make it harder to borrow from traditional lenders in the future.
Yes. There are lots of downsides to seller financing. The terms will be worse than a bank loan: shorter terms (higher payments = less cash flow), higher interest, usually higher down payment, etc. Most sellers do not want to do seller financing because they take the risk of non-payment and having to foreclose, which is a lot of work most sellers don't want to deal with, so there are considerably less of them.
And most seller financing deals in my market are usually just plain bad deals, because 99% of buyers have conventional financing or cash, which is WAY more desirable to a seller. So, at least in my market, sellers that offer seller financing only do so because the property has major issues keeping it from being financed in the first place, or they are can't get any other offers for whatever reason (undesirable area, etc).
There's a lot of talk on BP claiming seller financing is a great way to get into investing. I disagree. It might be your only option if you don't have the income, credit, etc to qualify for a conventional loan, but that doesn't mean its a good option. In my opinion, it RARELY is a good option.
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