Different Types of Seller Financing For Real Estate Investors

by 10 Apr 2013

It was very popular at one time for real estate investors to use the Seller as a source of funding when the interest rates at the bank where in the 15%+ range just a few decades ago.

As a real estate investor buyer, if you have properly screened your investment selection (location, profit potential, exit strategy) you are more than likely to be dealing with motivated sellers.

Motivated Sellers majority of the time will be flexible with their financing arrangements as long as they see it was WIN-WIN and their basic needs are meet. The beauty about using Seller Financing for your real estate deals is that there is no one-size fits all type of solution. There are many different ways Seller Financing can be used to fund your real estate investment deals.

Benefits of Seller Financing For Real Estate Investors

  1. Lower upfront out of pocket money needed
  2. Credit Score not always a deal breaker
  3. Banks can be avoided
  4. Flexible or negotiable terms
  5. Quicker to a close deal

Six Different Types of Seller Financing:

  1. Seller Funds the Whole Deal
  2. Seller Funds Part of the Deal by Carrying Second Mortgage
  3. Seller Funds Part of the Deal by "Wrapping" First Mortgage
  4. Seller Takes Second & Third Lien Positions, Sells Second
  5. Seller Carries a Second Position Note with Balloon Payment
  6. Graduated Payments as Alternative to Balloon Payment

What are the two most important keys to working with Motivated Sellers and getting Seller Financing purchase arrangements: Relationship & Investing Education.

Building Seller Relationship Key

Investors should take the time to develop a trusting relationship with the parties involved. That does not mean to attend their kids soccer games, but ask probative questions that demonstrate that you understand them and their situation.

Consider this, most Motivated Sellers did not start out that way and traveled a journey to get to this point. Using these basic five questions: Who, What, Where, When  & Why will unwrap all of the information that you need to make a winning proposal.

Once they feel like you understand them and not out to make a quick buck – sellers are more receptive to creative financing solutions. I've even seen where a homeowner would stick with an investor they trusted over one that offered them more money.

When you understand their needs and they know it, it then becomes easier to suggest ways to set up the financing that will create a win-win situation.

Educating Seller Key

There are advantages, disadvantages, timing issues, legal documentation, bank communication, financial disclosures and of course seller fears that when setting up or suggesting Seller Financing to fund your real estate investment purchase that you need to be aware of and make sure your Motivated Seller is fully briefed and educated on.

Why? Because if you can anticipate and replicate the issues and processes involved and communicate that effectively to your buyer they will be more empowered to move forward with participating and setting up some type of Seller Financing for your great real estate gem that you plan to profit on with their help.

Bonus: Be Creative...You can blend any of the above or come up with your own creative seller financing solution to fund your real estate investment purchase.



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