New Investors – You don't necessarily need boat loads of cash to do your first or even your fifth real estate deal. If you have a Motivated Seller, you can get them involved in the financing of your deal.
Seller Financing terms do not have to be an “All or Nothing” arrangement either. When it comes to Seller Financing or Owner Financed Properties, the Seller can Owner Finance the entire transaction or in some cases part of the real estate transaction .
Here are the basic steps involved a seller financing real estate deal:
Seller Funds the Property Deal
If the Seller owns the property free and clear, you can negotiate that they can carry a mortgage for the entire agreed upon purchase price of the real estate property.
Achieving this would me that as a real estate investor you will probably only need enough money to cover closing costs to get into the property or to take control of ownership. ACE IN THE HOLE!
But more than likely, real estate investors involved in a Seller Financed or Owner Financed deal will have to come up with some sort of down payment and cover closing costs.
The amount of down payment on a Seller Financed or Owner Financed deal often is negotiated and related to the amount of comfort or trust equity that the investor has built up with the owner.
Here is a Seller Financed Case Study example:
123 Maple St is owned by Peter Harry free and clear. It is an older SF home built in the 1950's and very close to major employers and a University. Mr. Harry has not made any repairs or upgrades to the property since the 1980.
As result of this, his house has been on the market for 15 months. He wants to move into an Assisted Living but needs the proceeds from the sale of his home to help him fund his golden years in a Retirement home.
Austin Smith, real estate investor, noticed that this property has been on the market for over an year and has had 3 price reductions. He decides to drive by the property. After all, it is in an upcoming neighborhood and great for student housing being so close to the university.
He meets Mr.Harry and tells him he is an investor and very interested in buying his property. He then asks three very important questions:
- Why are you selling the property?
- What do you plan to do when you property is sold?
- Why do you think are the reasons your house has not sold yet?
Here is what Mr. Smith discovered:
- Mr. Harry does not have the money for the repairs and upgrades needed to make the property saleable
- He needs monthly cash flow/income to pay for his Retirement Home obligations.
What Did Mr Smith Do Next? He laid out the foundation for why Seller Financing is the best option for Mr. Harry. Here is what he said to him:
- I'll be willing to take the property off your hands so you can move to Golden Years Retirement Home as soon as possible.
- Since the property is in needs of approximately $xx,000 in repairs, I can give you a down payment of $x, 000.
- I'm willing to pay you $x,000 per month until the property is ready for a buyer/refinanced.
- We will be using a Title Company to make sure all of your rights are protected and everything is documented.
In the end, Mr. Smith did get the property under his control with Seller Financing and after two years, he sold it to another investors fully rented. He paid off Mr. Smith and turned a profit himself.
Let me know what other case studies you are interested in. Good Luck and remember don't be afraid to try something new!