Unconventional Ways to Buy and Sell Your Property: The Book On Building Your Wealth One Equitable Property At a Time

By Sovanna Chuon

Unconventional Ways To Buy And Sell Your Property shows buyers, sellers and investors real estate creative financing methods to buy and sell properties. The book covers the following topics:

The Win-Win Factor of Seller Financing
Participation Mortgage
Returning Down-Payments
Unconventional Investment Funding
Using Seller Financing to Supplement Your Income
Rights, but Not The Obligation to Buy
Subject To
Automate Your Business. Increase Your Credibility
How to Sell The Seller Financing Concept to Sellers and Buyers
The Basics of Making Money in Real Estate

• Language: English
• Publisher: BookBaby
• Release date: May 14, 2013
• ISBN: 9781927677285

Book preview

materials.

CHAPTER 1:

THE WIN-WIN FACTOR OF SELLER FINANCING

INSTALLMENT FOR DEED

Traditional real estate transactions are made in collaboration with local or national banks. The buyer applies for a mortgage loan at their local or national bank, such as Bank of America or J.P. Morgan Chase, and the funds are used to pay off the seller. A long-term relationship is then kept between the buyer and the bank, with loans or mortgages of 10 to 30 years.

Seller financing is an unconventional way of buying properties, where the seller becomes the bank. There are numerous benefits of adopting seller financing as opposed to traditional bank mortgages. This book will give in-depth explanations and examples of the various advantages of seller financing for the benefit of both buyers and sellers.

TOP BENEFITS OF SELLER FINANCING:

Taxes are spread out over time.

The seller receives monthly payments without having any responsibility for the property. That means no hassles or worries about maintenance and taxes.

The seller can command a higher asking price because no bank is involved. By excluding the bank, the property is opened up to a larger pool of buyers, including the ones unable to quality for a bank mortgage.

The property sale is much faster because no bank is involved, which greatly reduces the length of the process, the amount of paperwork, etc.

The buyers will find it much easier to qualify.

Here are some other details that explain why seller financing makes it so much easier for both the seller and the buyer:

In order to obtain a mortgage, the buyer has to fit the bank’s criteria, which will be based on the loan seeker’s credit score, financial statements and a large down payment. With seller financing, the buyer does not have to go through the same level of scrutiny that the financial institutions put their customers through. The key element of seller financing is that the buyer meets the seller’s criteria, which are usually negotiable. In exchange for this hassle-free qualification process, the buyer pays a premium price. For example, if the appraised value of the property is $100K, the buyer might pay 10-20% higher than that price for the convenience of seller financing.

Alternatively, instead of paying a higher premium on the purchase price, the buyer could pay a higher interest rate. If the Federal Housing Administration (FHA) loan has a 4.25% interest rate, the seller offering financing can command a 7% or 8% interest rate. In some cases, I have seen interest rates in seller financing rise as high as 14% or 15%. Here, the seller is getting a good interest rate for taking on the risk. The buyer may be happy with this because the deal is straight forward and no bank is involved. This is good for buyers who do not qualify for bank mortgages.

As explained above, seller financing allows the buyer and the seller to deal directly, without involving any bank, real estate broker or even a real estate attorney. As a result, they can easily cut out all the middlemen and close the sale much faster. This is what I consider to be the beauty of seller financing.

BENEFITS FOR THE SELLER

To sum up, seller financing benefits the seller because it creates opportunities for the following:

Higher asking price

Higher interest rate

Faster sale

No management headaches

Reduction on capital gains

BENEFITS FOR THE BUYER:

When we look at it from the buyer’s perspective, the most beneficial part of seller financing is by far the ease of qualification. In the real world, buyers go through economic hardships and face multiple financial challenges. Some of these challenges can lead to bankruptcy and a bad credit history. In spite of all of this, the buyer may still be in a good financial situation at the time of the transaction (buying the property), and could still have funds available for a decently sized down payment.

However, that is often not good enough for the banks. These financial institutions will put the buyers through a meticulous process, checking every single creditor they have ever dealt with, every single bill they have ever paid, and only approve the mortgage loan if all criteria are met.

That is not the case for the real estate investor, where cash is king. The selling point for the seller is the 20%-25% down payment, which is often unreachable for traditional buyers. The buyer we’re after is the one willing to pay the price and not worry about banks, credit history and the hard labor of filling out reams of paperwork. The buyers would rather pay a premium price or higher interest rate to get into the deal, as long as it fulfills their American dream.

SELLER FINANCING EXAMPLE:

Let me give you an example that I have personally dealt with that will help you gain a better understanding of seller financing.

Through my direct marketing program, I came across two duplexes that were side-by-side. My realtor friend and a Power Team member contacted me and said, Hey, Sovanna! I think I found what you are looking for. The property is well cared for and the owner is looking to retire soon.

Just like most of my deals, I wanted to handle it myself, so I got the seller’s contact information and arranged to view the property. Before the appointment date, I did some preliminary homework to ensure the property fit my buying criteria.

On the day of the viewing, I went with my wife and greeted our host. The seller, an older gentleman, showed us all four units. We took down notes and pointed out flaws along the way. We also asked the seller questions during the tour. At the end of the viewing, we all sat down and talked for a while, getting to know each other better.

He told us that he was selling because he wanted to retire and pointed out to us that he did not want to pay a large capital gains tax. It was at that moment when I made a mental note of his pain point and realized that I needed to come up with a solution for it.

In terms of the deal, he was asking $120K for each property. I knew that was a fair market value because I ran the COMP/CMA prior to the