Owner financing is like a secret weapon for folks looking to sell their properties after hanging onto them for ages. Instead of selling your place outright and getting hit with a massive tax bill all at once, you play the bank and provide a loan to the buyer. This way, you get to spread out those capital gains taxes over time, making your tax bill way more manageable. Plus, you get a steady flow of cash from the buyer's payments, which can be super handy, especially if you're retired and looking for a consistent income stream. It's a smart move for both keeping more money in your pocket and making your property more appealing to a wider pool of buyers. What is your strategy when doing owner financing? Do you have the buyers assign the rent to you etc... Tell me about your experiences!
What is your strategy when doing owner financing? Do you have the buyers assign the rent to you etc... Tell me about your experiences!
When I tapped out in March, April and June of '22 I sold all my larger mf on i/o contracts.
I conveyed with a hybrid contract for deed which put title in the buyer's names, but I remain the legal owner. Like a car loan. After a default of 90 days, I take the property back with a piece of paper.
They are serviced with a note/contract servicer which holds the original docs, receives and dispurses pmts, does the tax reporting and enforces the terms like late fees, early payoff penalties, interest-only end dates, etc. It costs $18/mo per contract and $145 annually but is worth it at this level. I have other smalls I handle myself.
I agree with all your reasons to offer SF as a seller, just research what methods of conveyance your state has available which offers more seller protections.
If I just had a regular note and DofT I don't know if I'd do it. My buyers were sophisticated entities that would lawyer up to stall a foreclosure, but not sophisticated enough to challenge the conveyance method ironically. Conveyance methods of seller financing are not discussed nearly enough.
What is your strategy when doing owner financing? Do you have the buyers assign the rent to you etc... Tell me about your experiences!
When I tapped out in March, April and June of '22 I sold all my larger mf on i/o contracts.
I conveyed with a hybrid contract for deed which put title in the buyer's names, but I remain the legal owner. Like a car loan. After a default of 90 days, I take the property back with a piece of paper.
They are serviced with a note/contract servicer which holds the original docs, receives and dispurses pmts, does the tax reporting and enforces the terms like late fees, early payoff penalties, interest-only end dates, etc. It costs $18/mo per contract and $145 annually but is worth it at this level. I have other smalls I handle myself.
I agree with all your reasons to offer SF as a seller, just research what methods of conveyance your state has available which offers more seller protections.
If I just had a regular note and DofT I don't know if I'd do it. My buyers were sophisticated entities that would lawyer up to stall a foreclosure, but not sophisticated enough to challenge the conveyance method ironically. Conveyance methods of seller financing are not discussed nearly enough.
What is your strategy when doing owner financing? Do you have the buyers assign the rent to you etc... Tell me about your experiences!
When I tapped out in March, April and June of '22 I sold all my larger mf on i/o contracts.
I conveyed with a hybrid contract for deed which put title in the buyer's names, but I remain the legal owner. Like a car loan. After a default of 90 days, I take the property back with a piece of paper.
They are serviced with a note/contract servicer which holds the original docs, receives and dispurses pmts, does the tax reporting and enforces the terms like late fees, early payoff penalties, interest-only end dates, etc. It costs $18/mo per contract and $145 annually but is worth it at this level. I have other smalls I handle myself.
I agree with all your reasons to offer SF as a seller, just research what methods of conveyance your state has available which offers more seller protections.
If I just had a regular note and DofT I don't know if I'd do it. My buyers were sophisticated entities that would lawyer up to stall a foreclosure, but not sophisticated enough to challenge the conveyance method ironically. Conveyance methods of seller financing are not discussed nearly enough.
Interesting! I'm all ears. Please educate me on Conveyance methods.
I have switched up my buying strategy entirely to only going after landlords with 100% equity. Seller financing is soooo much more valuable than a bank for so many reasons.
I was just talking to my wife about this, I have no intention of buying another investment property with traditional lending. So many advantages for all parties, just as you mentioned.
Already answered. As agents, you guys are professionals I thought.
I was trying to answer the OP's question but he ignored all I said anyway.
Do some digging. I'm out.
The piece to be aware of with seller financing that can readily bite someone - depreciation recapture. The regular straight line depreciation is fine, that receives the normal treatment. But if you have done cost segregation studies and have 1245 / ordinary recapture to deal with, all of that income is taxed in the year of the sale, regardless of what you received for proceeds.
Not previously as big of an issue, but in this world that we have had the last few years of 100% bonus depreciation, it is rearing its head more and more often.
The piece to be aware of with seller financing that can readily bite someone - depreciation recapture. The regular straight line depreciation is fine, that receives the normal treatment. But if you have done cost segregation studies and have 1245 / ordinary recapture to deal with, all of that income is taxed in the year of the sale, regardless of what you received for proceeds.
Not previously as big of an issue, but in this world that we have had the last few years of 100% bonus depreciation, it is rearing its head more and more often.
Can you elaborate more on "1245"?
The piece to be aware of with seller financing that can readily bite someone - depreciation recapture. The regular straight line depreciation is fine, that receives the normal treatment. But if you have done cost segregation studies and have 1245 / ordinary recapture to deal with, all of that income is taxed in the year of the sale, regardless of what you received for proceeds.
Not previously as big of an issue, but in this world that we have had the last few years of 100% bonus depreciation, it is rearing its head more and more often.
Can you elaborate more on "1245"?
I have switched up my buying strategy entirely to only going after landlords with 100% equity. Seller financing is soooo much more valuable than a bank for so many reasons.
I was just talking to my wife about this, I have no intention of buying another investment property with traditional lending. So many advantages for all parties, just as you mentioned.
Have you been successful in acquiring properties with seller financing? Where are these properties located?
@Jenny Tsa
I think what is not talked about often is the risk with seller financing.
I have seen in many instances people sell properties to borrowers who would not traditionally qualify for the loan. They also do not get a substantial down payment. These two factors lead to historical higher default rates. While it’s great being a bank, there is a downside when a borrower defaults, and you have to go through a lengthy and arduous legal process to foreclose, which most likely the lender has never done.
In many instances on defaulted loans, the interior of the properties get trashed, and have significant amount of work which lowers the value of the property significantly.
Lastly, if a Bank would not lend to a qualified purchaser at 8% with only 5 to 10% down payment, why would someone want to do this to an unqualified purchaser?