Seller Financing: More Relevant Than Ever!

With all of the discussion about the current state of the economy, it surprises me how focused people get on the factors that just aren't in their control. In the news this week, there are articles about a major U.S. job index increasing 6 points in the last 30 days (largest jump in 4 years) and about French and U.S. think tanks stating that the recession is drawing to a probable end.

As you can imagine, I have people come up to me all the time and ask me what I make of the news and the current state of the economy. While the question is a fair one, instead of asking what I think about the economy, ask me about how you can capitalize on the economy. Theory and postulates are good and well, but at the end of the day, you have to take meaningful action in an effort impact your economy.

One of the enormous benefits of this economy is the fact that institutions have been rocked to their core. Non-traditional and mainstream financing is more difficult to attain today than it was a few short years ago. Rather than sit on the sidelines and wait for banks to start lending again, savvy investors are using seller financing more effectively than ever.

If sellers cannot find qualified buyers and buyers cannot qualify, than the most effective solution is for the seller of the property to actually finance the buyer, with the property as collateral. There are dozens of forms of seller financing (i.e. agreement for deed, land contract, wraparounds, seller seconds, installment contract, contract for deed,  installment trust deed etc) and trained investors need to learn how to structure a deal that gives the seller security, cash flow and a down payment (if possible). While most properties are purchased via bank financing, seller financing is completely legal. In fact, many deals that involve seller financing utilize escrow, closing companies (closing attorneys and escrow agents in non-title company states) appraisals and inspections.

Prior to the rise of widely available bank loans (circa 1950's) seller financing was one of the most common financing strategies. Like most trends, everything comes full circle. Several years ago, banks financed everything imaginable, today your seller just might also be your bank.

When you are considering a request for seller financing, you need to assess what the owner's need are. Do they need immediate cash? If they have equity and were to receive a large lump sum, how would they reinvest the money (a loan to you might yield a higher rate of return)? If they don't have equity, what is their mortgage rate, term and is there a balloon?

Not every seller who wants to finance you, can actually afford to. As a disclaimer, be sure to consult a legal professional if you ever have questions or are unsure about how to structure a deal. Attorneys, like other professionals are hurting for business and may be willing to discount their rate so that you can receive top-notch advice for a cut rate. To find a qualified real estate attorney, you may want to talk to your local title company. They work with real estate attorneys on a weekly basis and they could give you an idea of who to use.