How to find seller financed homes for sale
Irvine, CA · Member since 2016 · 243 posts · 59 votes
How to find seller financed homes for sale
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes@Ray Harrell
Sellers will owner finance because (1) they will be able to sell for a higher price because they will sell to people who can’t get institutional financing, (2) they think the interest rate they receive on the money they financed, usually 6-10%, is better that the 2% bank accounts are paying (3) they get to spread out the gain on the sale of property over many years and not be bumped into a higher tax bracket immediately, or (4) they can sell the property faster as a buyer doesn’t have to wait 45 days to fulfill institutional lending requirements
Buyers may want owner financing because (1) they save the points and other fees associated with institutional financing (2) they may own the maximum number of properties financed allowable by lending institutions (3) they as full time real property investor may not be able to prove the amount of income necessary to obtain a loan (4) they may not qualify for conventional financing, only hard money, in which case owner financing may be at a much lower interest rate (5) they may have liens, judgements, etc. outstanding that make obtaining outside financing impossible, (6) they may want to close quicker than available with institutional financing.
Please let me know if this makes sense
24 Replies
- Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes9y
Locate FSBO (For Sale By Owner) properties that are priced within your goal, and just call and make an offer. I've even offered through agent advertised properties, but you'll usually get better response from FSBO. You never know unless you ask. If you ask enough owners, you will find some who are willing to do it. Especially if their property has been on the market a while and not getting any interest. When you do make the offers, always tell them to keep your phone number in case they change their minds. Then if they don't totally tell you off, follow up every month if you still see it advertised. You will get call backs this way. Good luck!!
- Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes9y
I don't see how this works. Why would someone be willing to take payments on a home based on your promise to pay? If people can default on a bank mortgage, isn't it much easier to default on a seller financed arrangement?
- Real Estate Investor · Indianapolis, IN · Member since 2014 · 316 posts · 165 votes9y
- Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes9y
I can get better terms from a bank. Why would a buyer agree to this?
- 9yDaniel DietzPro MemberRental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
I think @Jeff Filali has the right idea. Probably not good luck through agents and listings on the MLS.
FSBO can be a good source, but even more so I think just networking in every way you can. To me, it is similar to looking for 'accidental private lenders'.... Let people know what you are looking for.
An example is we live in a town of 10,000 and have about 25 rentals. We take good care of them and lots of people know what we do so it comes up in conversation often. When they ask 'how did you get so many units?' I mention 'it is a combination of IRA funds, bank loans, and private lenders'. They often ask about the IRA and private lender part and it gives me a chance to say "if you ever know of anyone that is looking to diversify and make a good return let me know".
The same can be said for Seller Financing.
What the benefits for the seller are is that they CAN foreclose almost as easily as a bank if need be; there is a good chance that they can get a better rate on that Note that they will carry (say 5-10%) than what they are likely to get with their equity otherwise; if might help them sell a property that is hard to sell otherwise; and might be advantages income tax wise also.
One example is a 4plex that just came online here in our market. The numbers work out to make sense. The owner, who I happen to know and have thought about approaching about selling, has terminal cancer and has about 20 units altogether that he wants to dispose of. He is ONLY willing to sell by owner financing.
I am not a tax expert in estate taxes, but my guess from knowing others who have had similar situations is that IF he sold it outright for say 300K, he might have 75K of taxes. If he sells it using Seller Financing, I *think* he only has to pay the recapture tax on depreciation in the year of the sale plus the capital gain on the percent of principal paid that year.
An example would be if he bought it for 200K and it is completely depreciated an sells for 300K. He has 200K of 'recapture tax' * 25% = 50K tax. The other 100K of gain's tax rate depends on where his other income is at. IF he sold with seller using traditional bank money, he would likely owe a 25% tax on that gain having to count the whole 100K that year in his income. IF he sold using seller financing, there is a good chance that the say 10K in principal that might be due the first year would only be taxed at 15% from being in a lower tax bracket. If seller are planning ahead, they usually want enough down payment to cover the recapture tax due in the first year.
The real benefit I *think* (someone more knowledgeable than me please chime in here) is that if say he passes away after one year, the rest of balance due on would be 'stepped up' to the current value, so no tax due to the heirs.
Dan Dietz
- 9yDaniel DietzPro MemberRental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
Here is a link that explains it pretty well too.
http://www.nolo.com/legal-encyclopedia/tax-benefit...
Dan Dietz
- Irvine, CA · Member since 2016 · 243 posts · 59 votes9y
thanks for the insight everyone. What is the best way to find fsbo properties? Are there specific websites where I can find these or do I just need to search on mls?
- Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes9y
There's many benefits to owners who have 100% equity in their property. The biggest being they can usually get their full asking price or more, the tax savings on capital gains, and better return on their money vs if they had it in the bank/IRAs/Etc. Many older owners would much rather have monthly payments coming in verses a lump sum that they lose a large chunk to taxes. These are also great potential private investors.
When you get to the point where you don't need the cash, you start to think differently. Same with note buyers and private investors. I'd much rather get 8-10% annual return on my money then I would to get a lump sum. Its also very secured, they can foreclose on the property just like a bank.
I guarantee you if you ask enough people, and follow up with them, you'll find people open to doing it. Juts have to ask.
- Irvine, CA · Member since 2016 · 243 posts · 59 votes9y
Originally posted by @Jeff Filali:
There's many benefits to owners who have 100% equity in their property. The biggest being they can usually get their full asking price or more, the tax savings on capital gains, and better return on their money vs if they had it in the bank/IRAs/Etc. Many older owners would much rather have monthly payments coming in verses a lump sum that they lose a large chunk to taxes. These are also great potential private investors.
When you get to the point where you don't need the cash, you start to think differently. Same with note buyers and private investors. I'd much rather get 8-10% annual return on my money then I would to get a lump sum. Its also very secured, they can foreclose on the property just like a bank.
I guarantee you if you ask enough people, and follow up with them, you'll find people open to doing it. Juts have to ask.
Thanks for the insight Jeff, I appreciate it. Do you know the best way to find properties that are for sale by owners? Is there a particular website you can recommend?
- Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes9y
Google for real estate sale by owner. Many many real estate sites like Zillow let owners sell without agents. Also craigslist search real estate by owner. Or find someone like me in your area who finds deals like that all the time.
- Irvine, CA · Member since 2016 · 243 posts · 59 votes9y
Originally posted by @Jeff Filali:
Google for real estate sale by owner. Many many real estate sites like Zillow let owners sell without agents. Also craigslist search real estate by owner. Or find someone like me in your area who finds deals like that all the time.
Awesome advise. Thanks so much for your help Jeff!
- Property Manager · Berkeley, CA · Member since 2016 · 27 posts · 2 votes7y
Jeff Filali would you suggest reaching out to agents, brokers or wholesalers to find FSBO homes?
- 7yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
@Ray Harrell
Sellers will owner finance because (1) they will be able to sell for a higher price because they will sell to people who can’t get institutional financing, (2) they think the interest rate they receive on the money they financed, usually 6-10%, is better that the 2% bank accounts are paying (3) they get to spread out the gain on the sale of property over many years and not be bumped into a higher tax bracket immediately, or (4) they can sell the property faster as a buyer doesn’t have to wait 45 days to fulfill institutional lending requirements
Buyers may want owner financing because (1) they save the points and other fees associated with institutional financing (2) they may own the maximum number of properties financed allowable by lending institutions (3) they as full time real property investor may not be able to prove the amount of income necessary to obtain a loan (4) they may not qualify for conventional financing, only hard money, in which case owner financing may be at a much lower interest rate (5) they may have liens, judgements, etc. outstanding that make obtaining outside financing impossible, (6) they may want to close quicker than available with institutional financing.
Please let me know if this makes sense
- Member since 2018 · 175 posts · 103 votes7y
Not many sellers are advertising this so you must go find them and structure a good deal for them and you.
- Member since 2018 · 175 posts · 103 votes7y
Originally posted by @Ray Harrell:
I don't see how this works. Why would someone be willing to take payments on a home based on your promise to pay? If people can default on a bank mortgage, isn't it much easier to default on a seller financed arrangement?
Motivation, trust, capital gains issues, they like payments without work (passive income), 10's of thousands in interest, passing on their investments to children in the form of monthly payments, they admire the hustle, they want to see their property in good hands.
- Member since 2021 · 2 posts · 1 vote5y
OwnerFinancedLand.com: Owner Financed Land, Cheap Land For Sale, Property For Sale (mostly western properties)
BillyLand.com: Find cheap land for sale across America: Find cheap land for sale across America (auction style, national)
CountryPlacesInc.com: Land in Tennessee, Alabama land, Kentucky land and more! Buy land for sale by owner here!! (mid-south region)
MILandList.com: Affordable Homes, Lots and Land (City Lots, mostly in Michigan, offers seller financing)Many sites will be happy to sell you unbuildable tracts or desert land. Make sure the lot you buy has access to water / utilities. And good city or country maintained roads/access.
- Chesapeake, VA · Member since 2017 · 14 posts · 11 votes3y
Seller financing, in its simplest form, is a note for a free an clear property that the seller carries instead of the bank. Basically a seller pays their property off and you stop by like "hey, I'm interested in buying your property." The seller says, "great, pay me $xxx,xxx." Just like in any normal transaction. However, in this one, you don't offer cash or even a loan from a bank. You take ownership of the property at the title office and make your payments directly to seller. It's like buy-here-pay-here for houses. You can structure it so you pay the seller off in 30 years just like a bank and the APR is agreed to between you and the seller as well as all other terms. This is buying property without a bank and I'm pretty sure this type of financing precedes mortgages in world history. Either way you're not really looking for a seller financing deal per se as many home owners have no clue what that is and will rarely market for it (some will tho and the ad will say "seller will carry the loan, etc." I would instead focus on finding a problem to solve. Like do you see any sellers whose listing failed recently. There's a problem. A seller who is asking too much that you recently marketed. There another one. Finding sellers is easy. Just add seller financing to your tool bag if the numbers work. Hope that helps. Cheers.
- Chesapeake, VA · Member since 2017 · 14 posts · 11 votes3y
...oh and Foreclosuresdaily.com, ask for Angela Hernandez. She'll get you started with an off market list
- Rental Property Investor · Member since 2022 · 24 posts · 6 votes3y
Quote from @Dennis Weber:
Only an someone not smart would agree to this.
A bank can do 20% down, 6.5%, 30yrs. I’m seeing a lot of sellers offering 10% interest for financing and I think it’s ridiculous. The whole reason folks are looking at seller financing is to dodge the already high interest rates. - Member since 2024 · 1 post · 0 votes2yIf buyer defaults the seller keeps all of the mortgage payments as well as foreclosures on the property. It is just as easy to default on a seller financed note as it is a traditional mortgage.
Quote from @Ray Harrell:
I don't see how this works. Why would someone be willing to take payments on a home based on your promise to pay? If people can default on a bank mortgage, isn't it much easier to default on a seller financed arrangement?
- Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes2y
Hey @Demetrius Potts there are all kinds of people in all kinds of situations. When I sell with owner financing, I usually charge 9.9% or 10.9% and people are happy to pay that. Someone with a 700 credit score will NOT pay that, but they will get their own financing.
I worked at a Pawn Shop some years back. People would pay 20% PER MONTH, 240% annual, on a ring or jewelry that they have to leave at the store. Now THAT is crazy.
All kinds of people in all kinds of situations.
- Member since 2024 · 23 posts · 14 votes2y
Quote from @Demetrius Potts:
Quote from @Dennis Weber:
Only an someone not smart would agree to this.
A bank can do 20% down, 6.5%, 30yrs. I’m seeing a lot of sellers offering 10% interest for financing and I think it’s ridiculous. The whole reason folks are looking at seller financing is to dodge the already high interest rates.
I have bought 3 homes using owner financing. 20% down, interest rates slightly higher than market, 5 year balloon.I consider myself rather smart. Issues with DTI kept me from financing directly through a bank on these properties. Obviously if you can walk into a bank and get a lower rate that is the way to go.
Not sure what you mean by folks look at seller financing to dodge high interest rates. Interest rates are almost always higher with owner financing vs conventional.
- Member since 2024 · 23 posts · 14 votes2yI have purchased 3 properties using owner financing (they hold the title).
Quote from @David Rutledge:
Good evening,
I am wondering if anyone has any suggestions on how to go about finding properties with owner/seller financing?
This would be for an investment property not a lease with an option to buy.
Would it just be through agents, if it is mentioned in the listing etc... or is there another way to find these kinds of properties?
Also, can someone tell me how seller financing usually works. I have very little knowledge on it but the idea intrigues me as a way to obtain more property over the coming years.
Thanks for your time.
David
My offer on all three was the same. Contract for deed (20% down, slightly higher interest rate, 5 year balloon).
I found one in the local classifieds. Land with a small camp that had been owned by same family for 15 years so I knew there would probably be no mortgage. It had been vacant for awhile from the looks of it.
Another I found on the MLS. It was 5 acres with a 2 bay garage and small area for an apartment. The owners had planned to build a house but ended up moving out of state for work.
The third was from a family member.
My best suggestion is to find properties that have been on the market for awhile and make and offer. You are going to likely have to offer to pay full market, higher than normal interest rate, and a 5 or 10 year balloon.
Realtors are required to bring all offers so by all means feel free to make an offer. The longer the property has been vacant/on the market the better chance you have.
Some sellers may be willing to hold the paper. I would prefer to have gone that route myself but have no complaints with a simple contract for deed.
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