How to buy a property on payments directly from the seller?

[Rehaan Khan]

I'm trying to figure out a strategy on buying real estate from the seller on payments, adding value and reselling it for profit and thus, paying off the original seller. Please tell me what this strategy is called & how to learn more about it!

Peace & Blessings
Ray 

[Cody Roberts]

This method, known as seller financing, can be executed in several ways. In my opinion, the most effective approach is to close on the property and take title. The seller then assumes the first lien position as the mortgage holder, allowing you to negotiate the interest rates, terms, and payments creatively. The downside is that the property must be free and clear of any existing mortgages for this to work. If the seller has an existing mortgage, you can purchase the property on contract, but this option carries more risk since you won't hold the title.

Hope this helps. 

[Joshua Christensen]

Seller Finance.  Subto.  Lease Option.  There are multiple ways to do these.

1. Seller  Finance - the seller owns the property outright.  You have an attorney draft the mortgage and note.  Close with the attorney or a title company (state-specific).  Make payments through an escrow company.

2. Subto - The seller has an underlying mortgage on the property.  In New Mexico, we do a seller finance mortgage note that "wraps" the underlying mortgage to be paid through escrow.  

3. Lease Option - Negotiate a lease with the seller that you are the tenant with the right to sublease to a 3rd party.  The 3rd party pays you and you pay the underlying.  You have an option to purchase the property in 3-5 years at a preset purchase price. 

Risk of a Wrap.  The Due on Sale clause in most / many mortgages.  The bank reserves the right to call a mortgage due upon a sale.  Typically, the only time a mortgage services knows the sale happened is when it shows up on a report for non-payment.  Always make sure payments are handled by 3rd party escrow.  You to the Escrow > Escrow pays the mortgage & the seller.  Never go direct to seller.  HUGE red flag.  I even do my Lease Options through escrow to make sure the mortgages are paid and seller's don't walk with the cash leaving me a foreclosed property and no way to collect.

[Rehaan Khan]

Quote from @Joshua Christensen:

Seller Finance.  Subto.  Lease Option.  There are multiple ways to do these.

1. Seller  Finance - the seller owns the property outright.  You have an attorney draft the mortgage and note.  Close with the attorney or a title company (state-specific).  Make payments through an escrow company.

2. Subto - The seller has an underlying mortgage on the property.  In New Mexico, we do a seller finance mortgage note that "wraps" the underlying mortgage to be paid through escrow.  

3. Lease Option - Negotiate a lease with the seller that you are the tenant with the right to sublease to a 3rd party.  The 3rd party pays you and you pay the underlying.  You have an option to purchase the property in 3-5 years at a preset purchase price. 

Risk of a Wrap.  The Due on Sale clause in most / many mortgages.  The bank reserves the right to call a mortgage due upon a sale.  Typically, the only time a mortgage services knows the sale happened is when it shows up on a report for non-payment.  Always make sure payments are handled by 3rd party escrow.  You to the Escrow > Escrow pays the mortgage & the seller.  Never go direct to seller.  HUGE red flag.  I even do my Lease Options through escrow to make sure the mortgages are paid and seller's don't walk with the cash leaving me a foreclosed property and no way to collect.

Love it! Thanks for the input!