Wanting to learn more on owner financing

3 Replies

Hello BP, I am looking to buy a property from an individual and have her owner finance it to me. She is open to the possibility of it and I’m wanting to know as much about it as possible. Help me out with some of the insights that makes it more of an Incentive for the seller. Do the only claim the monthly payments as income? This will be my first owner financing deal so anything is helpful. Thanks. 

Owner financing can be a wonderful thing for both buyer and seller. Cut the bank out of the deal, who wouldn't like that! We often ask what the seller is planning on doing with the money from the sale, they often have no idea and often say "put it in the bank". Seller financing is great for them because they are able to earn a much higher rate of return, safely and securely, then they could ever get from the bank. If you were to offer them, say, 6% on their note, is this a lot better than their alternative? (All this also assumes a free and clear property - if they have a loan there are some other considerations - but still a perfectly doable deal).

The (previous) owner would claim the interest portion of the payment as income - IRS form 6252 should be used for this type of transaction.

We recently did an owner financing deal with a couple in their 80's for a 30 year fixed loan.  They did this quite on purpose because they wanted the kids to inherit a monthly income from them, rather than a lump sum.

@John Hovanec my understanding is that, if structured correctly, she will only pay tax on the money as she receives it. (Please confirm with a CPA) 

Talk about it is terms that benefit her. "Won't it be nice to know you will have a  monthly check coming in for the next X  number years?"   "You won't have to worry about how to invest a big chunk of money."  "The interest you get is an investment. That investment becomes safer as I pay down over time and the house appreciates over time"