Tuesday, April 26, 2011

Seller Tip! Or Buyer for that matter...

Seller financing can be a really great tool that can get deals closed!  Lots of flexibility, deferred capital gains tax for the seller, and a great way to receive nice monthly interest payments in a not so great economy.  Seriously, what is the bank going to pay you on your cash in the bank?  But, what if a seller can't offer seller financing - maybe there are multiple owners involved and they don't want to mess with it, or they just simply want or need all cash?  And what if that seller is trying to sell a property that will not finance - maybe remote raw land, or a home that does not fall into the cookie cutter homes that banks like to finance?  This poses a problem...  Sure, there are buyers with all cash, but they don't come along every day, and they can be very choosy in this kind of market!  
Well, there is a solution to this, and I thought I would pass it along...  There are all kinds of investment firms that buy real estate contracts.  My husband and I receive solicitations for them all the time, and we've disregarded them since we like the monthly interest...  However, they can be very handy for closing deals like I mentioned above.  How they work:  A buyer will offer to buy the property with 20% or more down, and monthly principal and interest payments.  The seller accepts the offer, subject to their being able to sell the contract at closing, and then lines up an investment firm to buy the contract.  So, at closing, two transactions will take place:  1. Seller sells property to buyer on a real estate contract, and 2.  Investment firm buys sellers contract - buyer now makes monthly payments to investment firm, and the seller has cash! 

One caveat to be aware of, and adjust for if needed:  These investment firms will pay the seller a discounted cash price on their contract.  For example, if a $100,000 property gets sold with $20,000 down, and $80,000 on a real estate contract, the investment firm might pay the seller $70,000 (this is a rough estimate - an exact quote for exact circumstances would be required), and assume the contract.  In this case, either the seller will have to decide to accept less at closing, or the buyer will have to offer more to entice the seller into this kind of an offer.  

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