Why You Should Consider Seller Financing For Your Investments

Real estate investment is not without its difficulties. And one of the biggest difficulties in real estate investment is getting financing for your potential investment.
 
 
Seller Financing
Seller Financing
 
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CHICAGO - Jan. 27, 2017 - PRLog -- Real estate investment is not without its difficulties. And one of the biggest difficulties in real estate investment is getting financing for your potential investment. Sometimes you'll find that you're unable to gain a loan or mortgage. When this happens, it may seem like you're out of options. However, there is always the option of seller financing.

Seller financing is exactly what it sounds like: the seller provides the financing. In other words, instead of going through bank, the owner of the property acts like the bank. And it works in the exact same way. Legal ownership of the property changes hands and the payment is sent directly to the previous owner. For example, let's say you want to purchase a rental house, but aren't able to get traditional bank financing. If the seller is asking for $100,000 for the property, but is willing to carry the contract, you as the buyer do not need to get external financing from a lender. So, in this scenario the owner would ask for $5,000 down and a 10% interest rate on the remaining $90,000, amortized over 30 years, for a monthly payment of about $833.69, before taxes and insurance. You'd then look for a tenant to pay about $1,600 per month and then could collect the cash flow difference each month.

The scenario obviously seems like a win-win. So, what's the catch? Well, the biggest problem with seller financing is that it is almost impossible to do if there's any sort of mortgage still on the house. This is because of the due-on-sale clause that is a part of nearly every mortgage paperwork. This clause is the real link that gives the bank the right to demand that the loan be paid back in full, immediately, if the property is sold. So, you can see how a problem could arise if you bought a house that had a due-on-sale clause and you didn't have the capital to pay it back in full. Now, this doesn't mean that the bank will demand immediate payment, however they can ask for it at any time. Which puts a great risk on you and the seller of going into foreclosure. Therefore, the best way to utilize a seller financing option is when the house is 100% paid off.

If you decide to go with the seller financing option, with the understanding that the house is paid off, there are several benefits you will find. The first one is easy financing. This is because, as said earlier, you avoid having to use the bank, which can mean the difference between a deal and no deal for many people. Plus, if you're tapped out on the number of mortgages you are able to get, seller financing can be a great asset in order to obtain additional rental property.

The second benefit to this method is possible no, or low, down payments. Because you're dealing with a private seller, there aren't any cut-and-dry rules regarding the down payment. Meaning, you do not have to deal with the rules imposed on by Freddie Mac or Fannie Mae, which require 28% to 30% down on an investment property. Instead, you are able to negotiate with the seller on the amount of down payment they will receive.

Another benefit to seller financing is your ability to have more creativity in structuring the deal. Because there are no set rules, you are able to freely negotiate rates, terms, payment amount, payment dates, and everything else that goes along with buying property.

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One of the last benefits we will talk about is that it doesn't show up on your credit report. Unless the seller of the home signs up with one of the credit reporting agencies, your seller-financed deal will not end up on your credit report. Which can help make obtaining other loans and mortgages in the future much easier. Seller financing can be a real link in helping you obtain an investment property without the hassle of going through bank. It allows you more freedom and creativity to negotiate the perfect deal, which can help lead you to further success in the real estate industry. For more info: http://www.bitwardens.com/2016/12/26/tips-for-getting-you...

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Tags:Seller Financing, Real Estate, Real Estate Virtual Tours
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Location:Chicago - Illinois - United States
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