Durham, NC · Member since 2016 · 125 posts · 42 votes
I believe I understand the basics of seller financing, and the pros/cons for the seller and buyer. However, I would like a little help breaking it down. Given the 1% rule, I would figure most houses where the owner has had the property for a long time, it would have appreciated significantly where you would not be able to get 1% rent of the purchase price in this case. Therefore, are buyers forfeiting the 1% rule in turn of reaching other favorable terms that allow them to cash flow? Let's walk through this example:
- Seller assumes value of home is $200,000
- Current rent is $1400/mo
- Seller intends on reinvesting money from sale of the house into conservative stocks, but wishes to avoid the big 1-time hit of capital gains tax.
Given the above, what might be favorable terms for both the seller and the buyer? Are there win/win terms available? I should note that the house is in an area that will appreciate nicely, but buyer's main objective currently is cash flow.
way out of the box but the buyer might be able to take the existing loan subject to the existing mortgage and bring a nice down payment to the table. If the house is worth $200k and only rents for $1400/mo it won't cash flow with those numbers without a huge downpayment. You would have to buy at $140k to meet the 1% rule.
This is the dilemma I see in seller financing. Assuming the seller has maintained the property well, it's likely appreciated far beyond what they originally paid for it. In the above case, the seller paid $120k, 20 years ago. The property is well maintained, and therefore warranted the appreciation. In fact, most houses in this area would appreciate much more rapidly than that. So I'm struggling to find favorable terms for both parties in scenarios like this.