What are the myths of seller financing?

[David Ounanian]

Seller Financing - Hype vs Reality

Seller financing has become a hot trending topic in the online real estate education market showing us that we can buy properties and even build empires while putting zero down to acquire those assets!

As someone who both invests in properties using seller financing and brokers 100's of investment deals for other investors every year I thought I would share some real world experience that we are seeing in today's market without all of the click bait hype.

Sound good?

First of all there is no doubt that seller financing is a very powerful strategy for acquiring assets with little to no money down and avoiding all the hassles of bank financing.

I think the big misunderstanding is that there are a lot of these deals available in the marketplace and they would be relatively easy for a real estate agent to help you find them.

Right now in my local market (St Louis MO) it's currently a seller's market with low inventory and rising prices. This makes it even more difficult to find seller financing opportunities.

You have to think about it from the seller's perspective. Why would they entertain the idea of financing the buyer's purchase of the property?

Here are some reasons:

Traditional offers are coming in at a lower price than they desire

They have too much debt on the property

They want to avoid a large tax hit upon selling

They still want to collect some income on the property and just not be responsible for owing it

When a seller decides to finance the buyer of the property they are also going to take on a significant amount of risk. What if the buyer stops making payments? They will have to go through a lengthy foreclosure process. It's usually not as fast as evicting a tenant in our state.

But what if the seller doesn't own the property free and clear and still has a non-assumable mortgage (most common) on the property? They could fall behind on their own mortgage payments and creditors would come after their assets, not the new property owner's.

There tends to be more motivation for seller's to consider owning financing in a buyer's market where prices are falling. Usually the seller has a price in mind and the market is not bringing a traditional offer high enough for them to sell. Seller financing is a way the seller can still get the sales price they are looking for if that's the most important factor in the sale for them.

It's also helpful for investors to develop personal relationships with the sellers of these properties, hence why it can be difficult for an agent to convince a seller to trust that their buyer will make good on the seller financing payments. The buyer needs to develop a certain level of trust with the seller.

I hope this has been helpful information to help you in setting your expectations around seller financing. If this is an avenue you are wanting to pursue I would encourage you to start reaching out to sellers directly and I would be happy to help you discuss a marketing strategy. Feel free to book a call with me below.

Kind regards,