Why You Should Sell A Property With Seller Financing
Do you have a property that you’re looking to sell? This might be a single-family home, a multi-family complex, a vacation home, or even a parcel of land.
If so, you know that finding the right buyer can be a challenge. Then, once you ensure the perfect fit, there’s the extensive (and expensive!) closing process to contend with.
What if there were a way to skip all the hassle and the headache, and start earning money on your property right away?
Seller financing affords you that flexibility and convenience. Also called owner financing, this is a process that allows you (the seller) to bypass the traditional financing process and earn real, passive income you can count on.
How does it work and why should you go this route? Today, we’re breaking it all down so you can understand how to sell your property with seller financing and decide if it’s the right move for you.
Want a Seller Financed Offer on Your Property? Get an offer from our team. We specialize in purchasing properties directly from owners with seller financing.
Or leverage our Seller Financing Contract Template and Tools.
What Is Seller Financing?
Seller financing is a special type of real estate agreement that allows the seller to handle the mortgage process and sell to a buyer directly, rather than going through a lender at a financial institution (i.e., JPMorgan Chase, Rocket Mortgage, etc.).
When buyers purchase a property this way, they don’t have to jump through the hoops required to use a conventional bank mortgage. Instead, they will pay a down payment and sign a mortgage agreement directly with the seller. The seller can choose to provide complete or partial financing to the buyer.
While the parties involved are different, the process is very similar to that of a conventional mortgage. The main difference is that the individual who currently owns the home (the seller) will also own the debt, rather than a bank or another lender.
For buyers, this setup is convenient because it allows them to pursue properties faster and in any condition without the headaches of conventional loans through banking institutions. Conventional lenders move slowly, require the property to be in a certain condition, and charge interest on the loan that could instead be charged by a seller through owner financing.
For sellers, it can be an equally attractive opportunity. Unlike a traditional bank mortgage, seller financing usually involves very few closing costs, if any at all. Most of the time, an appraisal isn’t even necessary. It’s also a faster and more effective process, often allowing the parties to settle within as little as a week.
Most importantly, it’s an ideal way to sell a property in as-is condition, without making any repairs, improvements, or staging for possible buyers. This saves you time, money, and a ton of stress. When you find the right buyer, it can be a win-win situation for everyone.
That’s why at Seller Finance Dream, we specialize in buying seller financed real estate. We can help you sell your home in any condition, whether it’s a small cabin, sprawling fourplex, or any type of property in between. You can finance the sale of a property you’ve already paid off in full or one that you’re still paying on. As long as you still have a solid equity position, your current mortgage isn’t a roadblock.
As your buyer, we’ll finance the sale directly through you instead of going through a conventional mortgage lender or a bank. This may even include a down payment, so you can start earning immediately. The loan will include interest and will cover the total purchase price of your property to release you from any future home fees.
Once everything’s official, we’ll start making monthly principal and interest payments. You’ll receive those regular payments like clockwork until the loan amount is paid in full.
When Should You Sell A House With Seller Financing
There are many times when you might want to start earning passive income from seller financing. These include:
When you have a property you need to sell quickly
When you have a property that needs repairs you cannot or will not make
When you need a steady, reliable, and passive income stream
If you find yourself in any of these situations, seller financing can be a smart way forward. This process not only makes it easier and faster to sell your home, but it also ensures that you’ll receive your payment on a monthly schedule, rather than in one lump sum, which usually reduces taxes.
Meanwhile, as those checks come in, you’re free of all the stress related to home ownership. That means no more repairs, maintenance, or upkeep. You also don’t have to contend with unreliable renters, property taxes, or home insurance.
You can use our Seller Financing Analysis Tool on our Templates & Tools page to evaluate the income and investment potential owner financing may hold for your property. This will help you tailor your ideal seller-financed terms and evaluate the advantages of seller financing compared to a traditional cash sale.
How Do You Seller Finance a Property
When you’re ready to seller finance a property, there are a few different ways you can do so. Let’s take a look.
Seller Financing with a Deed Agreement
This is one of the most common types of seller financing arrangements. Here, the property owner (seller) will record a mortgage against their property, then sell it via deed transfer to the buyer.
One advantage of choosing this option is that you have the opportunity to find mutually beneficial terms, including the length of the mortgage, mortgage payments, seller financing down payment, and interest rates. Other benefits include:
It’s a faster and less expensive transaction compared to traditional property purchase agreements that involve financial institutions.
In the event of a foreclosure, owners usually have more rights and can repossess the property quicker than if they sold it through a bank.
Most traditional fees (e.g., origination fees, closing costs, settlement costs) that banks usually charge usually do not apply.
Seller Financing with a Promissory Note and Deed of Trust
A promissory note is a type of loan instrument designed to cover the seller financed loan terms and the Deed of Trust covers what happens with the deed when the note is paid off.
This is a document that the home buyer will sign, stating that they will repay the loan under the agreed-upon terms. It also states that the seller (acting as a lender in this case) will hold the legal title to the property until that loan is paid in full.
In exchange for a deed of trust, the borrower (buyer) will give the lender at least one promissory note. This is a document that officially declares their promise to pay back the debt. The note will contain the terms of the loan, as well as the seller financing interest rate and other relevant obligations.
Once the loan is repaid, the lender (seller) will mark the promissory note as paid in full. Then, they will transfer the deed to the buyer. In the meantime, the lender will retain the original promissory note, and the buyer keeps a copy for their records.
The main benefit of establishing a deed of trust is that if the buyer defaults on the payments and foreclosure must occur, both parties can handle it outside of court. This is an easier, faster, and less expensive process known as non-judicial foreclosure.
Seller Financing with a Lease Option
A lease option is also known as a rent-to-own contract. With this approach, buyers will make rent payments to you for a designated period of time. At the end of the lease period, they will have the opportunity to purchase the property at a pre-designated price that was defined at the start of the lease option.
Often, sellers will apply the rent payments they’ve accrued as part of the down payment for the home, lowering the total amount that the buyer has to pay. During the time that the property is rented, you will retain ownership rights to it and essentially act as a landlord.
Does Your Property Need to be Paid Off to Owner Finance
No! As long as the terms make sense then you do not have to own your home outright to owner finance it. We can work with you to create terms that work with your situation, helping you sell your property with owner financing and reclaim your financial freedom quicker than you thought possible.
That's why we've created the seller financing calculator. With just a few inputs, you can determine if owner financing is the optimal method for selling your property.
Benefits of Selling Your Home With Seller Financing
Now that you know how to seller finance property, let’s recap some of the most important reasons why you should do so.
Sell your property as-is, no repairs or costly improvements are needed
Skip the sales listing and mortgage process and close quicker
Enjoy passive, hands-off income without the hassle of maintenance, repairs, or tenants
Avoid costly real estate agent fees and listing fees
Leverage built-in default protection -- you keep all the money you’ve earned and get the property back if the buyer defaults on the loan
And get huge seller financing tax benefits from delaying capital gains taxes
Another reason to choose seller financing? It’s a smart money move! You could potentially earn more by selling your home this way, earning regular payments each month, than by putting your hard-earned cash into a riskier investment.
So is seller financing a good idea? Yes! It can be a lucrative way to sell your property and can offer many benefits depending on your investment goals.
Real Estate Professionals Also Ask
Real estate professionals often ask us these questions about seller financing so we’d like to share our insights with you.
Is Seller Financing a Good Idea for Sellers?
It depends on the seller’s goals. Seller financing can offer a reliable source of passive income while providing an interest return on the equity you’ve built in the property. Additionally, it comes with potential tax advantages and can delay the payment of capital gains taxes. This sale approach can also expand your pool of potential buyers and allow you to continue earning monthly income without the challenges of managing a rental property.
However, it’s important to evaluate your selling goals and carefully weigh the pros and cons of seller financing before deciding to go this route.
What Are the Tax Advantages of Seller Financing?
Seller financing does offer key tax advantages tied to the ability to defer capital gains taxes by spreading the gain over several years instead of paying it all at once. This deferral allows you to earn interest on the deferred tax amount which essentially turns the money you would have paid to the IRS into an income stream. Additionally, by spreading income over time it can help you stay in a lower tax bracket which may reduce your overall tax liability. You can learn more in our Seller Financing Tax Benefits article.
Does Seller Financing Reduce Capital Gains?
Seller financing doesn't reduce the total capital gains tax owed after a property sale but allows you to defer those tax payments over the seller financed loan term instead of paying it all in the year of sale. This capital gain tax deferral from seller financing lets you spread the tax burden across several years while earning interest on the deferred amount which turns your tax obligation into an income stream. You can learn more in our Seller Financing Tax Benefits article.
Why Would Someone Offer Owner Financing?
Owners offer owner financing to delay capital gains taxes, earn monthly passive income, and receive interest on the property's equity instead of a lump sum payment when selling a property. It's a creative financing strategy that provides tax deferral benefits and steady income from the property sale.
What Are the Disadvantages of Seller Financing?
Seller financing does have downsides such as tracking payments, buyer default or foreclosure, and potential abandonment or improper upkeep of the property by the buyer. However, these disadvantages of seller financing can often be mitigated by using a loan servicing provider and thoroughly vetting the buyer’s creditworthiness before proceeding with the sale.
What Is the Difference Between Owner Financing and Seller Financing?
There is no difference – owner financing and seller financing are simply two terms for the same concept. In both cases, the property’s owner (or seller) acts as the lender and holds the loan or mortgage for the buyer. You can use the terms owner financing and seller financing interchangeably.
Seller Financing Offer & Tools
Seller financing requires a clear understanding of the process and the right buyer. We specialize in purchasing properties with owner financing for our personal portfolio and can provide you with a Seller Financing Offer. Alternatively, you can leverage our Owner Financing Tools and Contract Templates to navigate the seller financing process on your own.
