How to Acquire Real Estate...With Seller Financing

Today, I’ll be talking about using creative financing, specifically “seller financing”, to purchase real estate.

In a high-interest-rate economy, it often doesn’t make sense to buy rental properties, as the high rates make for a negative return on investment.

This is currently an all-too-obvious reality for many investors.

Unfortunately, so many people abandon their real estate investing goals and wait on the sidelines for the market to turn favorable.

The majority simply do not understand creative financing.

Most investors:

• Continue to use traditional bank financing.

• Buy properties that have negative cash flow.

• Use real estate agents with no investing experience.

• Do not change strategies with real estate cycle changes.

But with creative financing, specifically what’s called “seller financing,” a seller, the owner of a property, agrees to act as the bank for the sale of the property.

The seller agrees to “finance” the debt or balance of the sale of the property instead of a bank, allowing them to avoid the large tax implications of a sale and sell their property faster.

In truth, this arrangement has benefits for both the seller and buyer, which we’ll cover.

So how does it work?

Step 1: Access the MLS, Redfin, or Landwatch.

You’ll want to work with an agent to search the MLS and use words in your search to include “seller financing, creative financing, seller carryback.”.

Alternatively, you can run similar searches on online platforms pulling MLS listings, such as Redfin, Zillow, etc.

Target a specific zip code or market, and you should now have a list of sellers who’ve listed their properties, asking buyers to come up with creative financing options.

It’s that easy.

Step 2: Negotiate terms with the seller.

Once you’ve selected a property of choice, call up the seller or seller’s agent and decide on terms.

There are typically four areas up for negotiation:

1. The purchase price

2. The down payment amount

3. The interest rate for the seller

4. The length of the loan to the seller

Each of these can have benefits for both sides.

A lower purchase price is beneficial for the buyer.

A lower down payment is beneficial for the seller as there are no tax implications on a large lump-sum sale.

A lower interest rate benefits the seller by adding incentive for buyers to the purchase and benefits the buyer, of course, with a more favorable monthly payment.

The length of the loan can have beneficial tax implications for the seller and allow the buyer to allow time for a refinance or sale at a favorable time.

Negotiate terms that make the investment worthwhile.

A 10–20% return on investment is often worthwhile, but it’s entirely up to you.

Step 3: Finalize a contract

With the terms decided, work with a title company or real estate agent to put together the contract.

It’s important to work with a real estate agent or title transactions coordinator familiar with seller financing. Let them guide the paperwork process.

The right transaction team has experience and empowers you, as the buyer, to execute a seller financing strategy.

And that’s it!

Remember, although this process might feel uncomfortable at first, it’s a far more reliable method for buying cash-flowing real estate in a high-interest-rate economy. The goal is to get a good return on investment with real estate, so don’t take any old terms because they're comfortable.

Make sure the numbers work.

Something that’s much easier to do with creative financing than traditional financing at present.

Until next time… Stay Savage.