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Why Owner Finance a Property?

The average seller of property wants top dollar for their property, a cash buyer, and no costs. So why would they consider owner financing, especially when notes are typically sold at a discount? There can be advantages for the seller to consider offering a property for sale with financing when there are property challenges:

§ Property type is difficult to finance through traditional third-party lenders

§ Property has been on the market for 90 or more days

§ “As-is” closing is desired on a property in need of repairs

§ Ownership has not met minimum holding time or title seasoning requirements of traditional lenders

§ Immediate closing required in the event of foreclosure or other stress (e.g. divorce)

§ Quick closing is preferred by seller to free up investment capital

§ Property owner is a tired or burned out rental landlord

Other sellers look at owner financing as part of their real estate investment strategy to:

§ Convert rental income to interest income

§ Maximize selling price

§ Increase prospective buyer pool

§ Utilize the installment sale tax advantages for deferral of capital gains under IRS Section 453

§ Leverage property when buying or selling (including wrap notes subject to underlying financing)

§ Generate long-term interest income

The last one is a great way to generate passive income. Let me give an example of the value of seller financing for a seller. . If you have a $100,000 mortgage at 9.5% interest amortized over 30 years, the monthly payment would be $840.85. If the buyers took the full 30 years to pay back the loan, they will have paid $302,706 over time. That’s an additional $202,706 due to interest! After all, why should the banks get all the benefits of interest income backed by real estate? Best wishes in your wealth pursuits.- RLW

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