I still don't get why Homeowners would sell via Seller-Financing

[Rohan J.]

Hey BP,

I've read a lot about the pros and cons about buying rentals through seller-financing, and I'm still unclear on why a seller would be interested in selling his property through this method. I'm trying to better understand this financing option more deeply right now in order to 1) figure out which type of homeowners I should target and 2) create the proper pitch that outlines the benefits of this financing, in order to make a less-experienced seller more comfortable with the proposition.

It looks like the main benefit of seller-financing is the fact that an owner would get payments spread out through 30 years instead of receiving one lump sum payment, but then my question would be: why wouldn't an owner just rent out their home instead? Wouldn't they accomplish their same goal of cash-flow by simply renting it out and holding onto it instead of selling it via seller-financing?

Would love to hear anyone's experience with seller-financing, and whether they would do it again. I'm afraid of being exploited in some way through this option, and obviously the last thing I would want is to get screwed in the end somehow and not actually receive the property. 

[Jeff Filali]

I always offer Seller Financing on most the properties I sell. The reasons I do: A) I can sell for full premium price; B) I can sell the property fast if others in the area are moving slow; C) I get a nice return on my investment, usually better then most other investments (I typically charge 20% Down and carry the Note for 10 years at 10% APR); D) better cash flow without being a landlord or dealing with landlord hassles (NO Repairs, NO Calls, NO Reserves needed, NO Property Taxes, NO Property Insurance payments; The payments come in and if I don't have a mortgage, the funds are 100% cash flow.)

When buying a fixer-upper property and rehabbing it, you can average well over 20% APR return on the net cash invested when offering seller financing!! Even if you only charge 10% APR, you get to ask for full premium price, which has to be figured into the returns.

EXAMPLE DEAL-

ARV: $110,000 Purchase Price: $45,000 Repairs: $15,000.00 Total Invested: $60,000

Sold for: $109,900  Down Payment Collected: $20,000   Net-Cash Invested: $40,000

Balance Receivable: $89,900 Financed with Seller Carrying the Note at 10.0% APR for 120 Months

Monthly Payments: $1,188.04  Total Principal + Interest Return: $142,564.21

Total Profit: $102,564.21 or 25.6% APR (If seller carried it for 30 years, its still over 20% APR)

Plus none of the hassles of being a landlord!!