My seller financing plan would like some critiquing. Trying to buy first house :)

7 Replies

OK so I am wondering how viable the more experienced guys think this is:

I target older people on social security that most likely have their house paid for.

I leave a letter from me introducing myself to them and making them aware that I would like to buy their house in a win win seller financing agreement

I would tell them that by financing their house themselves, I would pay them a better return than any bond, money market, or savings account. And stocks are too risky.

Also, by self financing to me and receiving installments, they could potentially save a lot on their taxes.

What do you think the success rate of this would be?

Also, how do I find these kind of people?

I'm sure this is a fairly common strategy... am I missing anything? anyone have some experience to share?


So stocks are too risky but an unknown guy promising to pay some interest is as secure as a bank deposit?

Is there anything I can do to make it more secure. If I don't make the payments then they get the house back... I can do proof of funds, i have a top credit score... anything else I can do to make the deal as secure as possible and make the seller feel good?

There's an education component to selling on installment sale that are free and clear

Publication 537 from the IRS talks about installment sales

Using a private mortgage and turning your house into a cash flow stream like an annuity should be the focus of the conversation

If you rent out the house you have to deal with insurance and getting sued in case the tenant find some kind of reason to bring you to court

Owning  a private mortgage on the other hand reduces the risk of being sued

My advice to you is also compare it with a reverse mortgage which they get a lump sum but they have to surrender the house upon death

Really study reverse mortgages and understand the negatives of reverse mortgages, mostly the fees that are involved

The eldercare population is a big market, so take a look at AARP's website and understand the basics of annuities

The conversation I have with free and clear houses is this

"Mr. seller you've got a few options

One you could sell with an agent and pay the cost to sell which include real estate commission, closing costs, sellers concessions, and vacancy holding costs.  All that adds up to between 10 and 15% value of the property, so basically you'll net 85 to 90% of value

Secondly could turn into an investment property and rented out and get a property manager to manage it for you, you pay about 8 to 10% of collected rent to the property manager, and you need property insurance to protect yourself. You have to allow for vacancy and damage and cleanup costs when the tenant moves out and you have to retenant it.

A third option is to sell the property on private mortgage where you will get a cash flow for a period of time. This cash flow is like an annuity where you will get a monthly payment and if you pass away before the note is paid off in full D's cash flow payments can continue to either your children were to charity like a church or university

The biggest risk to you as a seller on a private mortgage is what if the payments stopped for some reason, and we can set up a automatic payment directly to you as a private lender

Also to protect your interest we can open up an escrow account and if for any reason these payments are 60 or more days late you will get title returned to you so you do not have to go through a foreclosure process

@Brian Gibbons Can you elaborate the last part? How could the lender get the title back without going through foreclosure?

And there is obviously still the risk of the new buyer stripping the house before leaving. Thats conveniently left out of the analysis.

I'm always suspicious of "investors" targeting the elderly population for any kind of strategy. They are preyed upon by all kinds of scammers. They are often lonely and just feel so happy someone is talking to them they turn over their only asset for far less then its worth. I wouldnt feel good about making money that way.

@Brian Gibbons Thanks a ton. I really appreciate that write up.

I am also not targetting elderly people. I guess that may have sounded bad. I am reaching out to anyone that would do this deal with me and I just read that older people that own most of their home are most likely to seller finance. I am just looking for ways to buy a house with less that 20% down and without having to qualify for a bank loan. 

There is subject to existing financing or wraparound mortgages (AITD) as a way to buy properties without a bank loan

There is a contract for deed type of instrument in California also called Contract for sale 

What you need is an education in California as far as what's possible and I would investigate a good attorney in California as well as  title company in California

Yea I am vaguely familiar with subject to and wrap around deals. Didnt know about the contract for sale. Im definitely going to study this more. So many options. I was just going with the seller financing because it seemed like the easiest

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