The word is out and owner financing is on the rise as buyers and sellers look for creative
ways to finance property in the struggling market. So what’s all the hype? Here are ten
advantages to using owner financing to buy or sell real estate:
1. Shorter Marketing Times – Properties marketed with “Owner Will Finance” will draw
a greater response rate and generally sell at least 20% faster than properties requiring
conventional financing.
2. More Buyers – With many lenders’ tightening their approval process, the seller carry
back enables a greater number of buyers to purchase and finance a home.
3. Speedy Closings – Without the red tape of a conventional mortgage lender, a real
estate transaction can close in as little as two to three weeks.
4. Maximize Selling Price – The seller has an opportunity to realize full market value
for a property when providing financing. This is viewed as a sales concession in many
markets.
5. Reduced Restrictions – Restrictive lending requirements don’t apply providing greater
flexibility when it comes to the buyer’s credit history, down payment, debt to income
ratios, and other underwriting criteria.
6. Fewer Costs – There are no expensive loan costs to worry about. A buyer can put
the money they save on origination fees, points, underwriting fees, mortgage insurance
premiums, and junk fees towards the down payment and building equity.
7. Interest Income – The seller is able to collect long-term interest since they are
essentially acting as the bank by extending terms to the buyer. On average a buyer
will pay back 2 to 3 times the amount of the mortgage on a 30-year term as a result
of interest.
8. Installment Sale Tax Deferral – When property is sold at a gain and subject to
tax there can be an opportunity to delay a portion due when reporting under the
Installment Sale Method (Refer to IRS Publication 537, Form 6252 and speak to a
qualified tax professional for further details).
9. Secure Asset – The balance of the purchase price is collateralized by the property.
If the buyer stops making payments the seller can take back ownership of the home.
10. Liquid Asset – The seller owns a liquid asset, which is just a fancy way of saying
somebody will purchase the note, mortgage, trust deed, or contract on the open market.
Many sellers elect to sell their future payments to a note investor or note buyer for
cash today rather than payments over time.
Doug Rush is the owner of TK Funding and specializes in the purchase of owner
financed mortgage notes and business notes.
