Seller financing is absolute gold for a real estate investor. I LOVE working with this strategy and I want you to learn everything you can. When you do, you’ll see you can both save a ton of money AND make a bunch as well! WAHOO!!
How to Use Seller Financing to Invest in Properties
Seller financing deals are all over the place. I have already written several posts on the topics, so that you can check out more information. This post helps you to know what questions to ask. And this one explains the kind of people who often make the best seller financing sellers.
You will find all kinds of situations where the seller is interested in being the “bank.” In this case, they want someone just like you to buy the house from them, even if it is not right away. This is the heart and soul of seller financing.
I have a house where the seller wanted to sell, but did not want to get hit with capital gains tax, so we struck a deal. Now, whether or not he was going to have to pay a bunch in capital gains, I could help him to deal with his situation. You may not have a clue how to do a seller financing deal, but you still grab that option. Once the deal is set, CALL ME.
It is better to figure it out as you go than to never get started at all.
Sure, you want to make sure the numbers all work. You need to have a good monthly payment, interest, price on the house, etc. But, for the most part, seller financing is an incredible opportunity and the best way to buy houses.
Here’s why: the owner is not going to run your credit. This is something between you and them. It does not concern the banks. Your credit is not affected.
Banks are restricted in what they can offer and how often they can offer it. Seller financing, however, is something you can do as much as you want. You may only be able to get 2 houses with a traditional loan situation.
But, with seller financing, you can have as many properties with that structure as you like.
Now, back to this seller who wants to avoid capital gains. Let’s say we buy the house with seller financing for $30,000 at $500 monthly payments. The house is worth $85,000. It has three bedrooms and one bath, which stinks because 1 bath is rough. However, we are going to make it work. This house also needs a new roof. The estimate to replace that is about $10,000 on the high end, assuming something will go wrong.
That means that all-in, we have to spend $10,000 to get the new roof, but we are then going to lease option the house to a tenant-buyer for $85,000 at $800 monthly payments. This means that we have $300 extra each month. The risk is super low for this. The seller is not worried, because they are basically the bank. We are not worried, because we are helping out the seller and paying them monthly, so there is very little risk of things falling through.
The tenant-buyer adds in a whole new area from which to make some money. Not only are we going to make about $45,000 profit from the purchase price when we sell it, but we also receive an option fee of probably $5,000-$10,000. In addition, there is also the monthly $300 cash flow. Cha-ching!
People who come in as tenant-buyers do not have a renter’s mentality. They have a “buyer’s mentality.”
These are people who are ready to buy, but just need a leg up. When someone puts $5000-$10,000 down on a house, they are not going to just come in and tear it up. That is their money and they are invested in the property, too.
These are people with bad credit, who need to establish a job history, but need a fresh chance to buy a house. This is a serious option for these people. I have had great experiences with my tenant-buyers.
Only one couple ever walked away from a contract once, because they were going to end up adopting a kid. And these people added two bedrooms to the basement of the house and kept the house in incredible shape! While this couple needed to leave their initial house with me, they still wanted to see if we could work out another deal for another house. That’s how committed these people are to this option for their lives.
So, you have to think of tenant-buyers are very serious buyers, which makes them perfect for lease options.
As of yet, my tenant-buyers have only taken care of my properties. They know that they are building equity and value, which gives them “skin in the game” for its care.
In my mind, seller financing lays the absolute best foundation for a great lease option agreement. Seller financing allows things to stay simple and “close to home” with the seller and me, without bringing in headaches like banks and credit checks.
I love working with them in order to find and secure deals. Honestly, don’t ever pass one up, even if it feels a bit chaotic and fast-moving. Keep things simple and definitely get in touch if you get stuck! You don’t have to go through it alone. Now get going!