Seller financing mindset

[Gilles D.]

Hi everyone,

I currently own a home outright that almost doubled in value over the past 5 years. 

It shot up from 750K to about 1.4M based on current comps.

Now, I am considering seller financing on this home as I'm close to retirement.

Currently I am making about 3K net cash flow on this property after all expenses paid, but obviously a ton of equity is unused at this moment. I am waiting on something to clear up before I can sell. This will be in August.

I was wondering about seller financing and offering a better rate to the buyer to make it more appealing.

Now, I can't really wrap my head around as to why this would be advantageous to the buyer.

For me, with a 5 year balloon I'd make about 300K extra off the property. Assuming a 300K downpayment.

If the seller agrees - yes he gets a 1% better rate than the banks would give him, and he doesn't have to qualify...

But when he refinances when the balloon is due, he will end up paying more interest if he refi's to a 30 year conventional.

So even if I offer him interest only for 5 years, he still ends up paying a lot more. His biggest advantage is in lower monthly payment... Right? But this is more of a family home than an investment property.

For me it would be "easy" money, obviously I need to factor in the opportunity cost of not putting the 1.1M to work for 5 years.

is there anything else I'm missing? Or is a deal like this really a win-win?

Who comes out ahead the most?

Hope that is kind of clear and any input/advice is very much welcomed! 

Thank you!

[Doug Smith]

I think it depends on your goals and risk tolerance. Seller financing can be great for cash flow, but if you fix the rate and lock it for the long term, you might have "seller's remorse" if other opportunities open up or interest rates rise on you. I see all the time on here people offering super-low interest rates to entice people to do seller financing, but I tend to go the opposite direction. I charge a bit more than market and make sure I'm getting a good chunk down to protect from any temporary dips in the market. The last crash of 2007-2008 saw a 19% dip in housing prices, but if you bought at the tip-top of the market, you still made your money back if you held for six years. The next biggest dip only lasted for three years before recovering. You'll want to make sure you're collecting enough down to cover any potential temporary dips. 19% was the largest that's been recorded since the Fed has tracked that data. Don't give away the store when you seller finance and you'll be fine. Good luck to you.