Many sellers of real estate automatically think they need an all cash buyer, but do they? What many people need is a steady flow of income. If someone received $100,000, likely they would spend some and invest some. In that portion that they invested, would they be able to earn 6% or more on their money? A note secured by real estate can provide a good rate of return and a steady income for many years.
For the last several years, money has been inexpensive and easily available for owner-occupied single family homes. Perhaps money will be less available in the future, but even when money is cheap and plentiful, some borrowers who would be excellent buyers still cannot qualify under institutional standards, and there are always some properties that are non-conforming and don’t meet traditional lender standards. In these situations, seller financing can be a great solution.
When the seller helps the buyer by acting as a lender, the seller may finance all or part of the sale. The term given to such seller financing is “seller carryback financing.” A seller is literally carrying back part of the financing on the property being sold.
The more equity a seller has in his property, the easier it is for the seller to structure carryback financing. Some experts estimate that up to half the homes in America have no existing debt. Often times the best candidates for seller financing are free and clear homes being sold by elderly people who need retirement income.
CARRYBACK ADVANTAGES FOR THE SELLER:
1) Getting top price by taking terms rather than all cash.
2) Deferring taxes now on any gain by using an installment sale.
3) Receiving a higher interest rate than if you put the proceeds from a cash sale in the bank, a CD, or money market fund.
4) Monthly income secured by property you understand and whose value you know.
5) Larger number of prospective buyers and a quicker sale because you offer seller financing. Using the terms “SELLER FINANCING” or “OWNER WILL CARRY” on a FOR SALE sign or classified advertisement will attract a larger number of prospective buyers.
Always consult with an attorney and an accountant before consummating any real estate transaction.