How Does Seller Financing Work in Real Estate?
I’m Ted Thomas. I’ve been involved in real estate for over 30 years, so you are in the right place to make money and control your destiny.
It doesn’t matter how old or young you are. There’s a lot of opportunity because there’s so much abundance.
My specialty for the past 30 years is alternative real estate. Unlike most traditional investors who admire and strive to learn about rental properties, apartments and office buildings, I chose tax lien and tax deed investing which I’ll explain.
Today I’m answering your question, “How does seller financing work in real estate?” This is something I do with my students regularly. We make it our business to sell quickly, and we utilize seller financing, which really accelerates the sale. Not to worry, I’ll explain that as we go.
First, we need to understand what and how does seller financing work in real estate?
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How Does Seller Financing Work in Real Estate?
Tax Defaulted Real Estate
30-years ago, I discovered that the local county government confiscates real estate, and they do so when property owners fail to pay property taxes.
The government resells those confiscated properties for pennies on the dollar at public auctions.
Investors like you and me can buy at the auction, and sometimes receive a 60%, 70%, 80% or more discount. Wow! Imagine buying for 10 cents or 20 cents on the dollar.
When I learned that I could buy properties for pennies and sell them as-is or fix them up, I could instantly see my profit before I purchased.
How Does Seller Financing Work in Real Estate?
Buy Low and Sell Low
How does seller financing work in real estate? The answer to that question is it works great!
For example, while the rest of the investment community is hiring brokers and managers and fixing real estate properties in order to retail them into the market, I can buy low at the auction and sell low with seller financing.
How Does Seller Financing Work in Real Estate?
Installment Sale
So, how does seller financing work in real estate? Let’s go into more detail.
If you own a property, it’s perfectly legal and ethical to sell the property yourself. It’s also legal for you to be your own banker and accept a down payment and further installments until the full payments are made.
For example, let’s assume you own or purchase at auction a property valued at $50,000, and you desire to sell it. It’s legal for you to take a down payment and installment payments of whatever amount you and the buyer agree to until it’s paid for.
My discovery 30-years ago was that auction properties are available in every county, and they are sold to the public. Additionally, the mortgage or trust deed loan is canceled when you buy at auction. It’s free and clear.
How Does Seller Financing Work in Real Estate?
Getting Professional Assistance
Once again, if you own a property you can sell to anyone you find acceptable or who has a down payment and is willing to make installment payments to pay the balance.
This process is called seller financing, and it’s been around for over 200 years.
Real estate brokers, title companies and attorneys are all willing to assist you in this process, and they work for fees. Title companies earn very little money and give you great value.
Keep in mind, seller financing is not the traditional go-to-the-bank, get-on-your-hands-and-knees and beg for money transaction. It’s a seller attempting to accelerate the sale.
How Does Seller Financing Work in Real Estate?
Tax Defaulted Auction
Here’s an example. The seller wants to make a great deal and do it quickly. In this case, the seller happens to be the local county.
The county discounts and sells a property for 10 cents or 20 cents on the dollar, and anyone can purchase it.
The auctioneer prior to selling will reveal the assessed value. Let’s assume it’s $100,000, and the property was in default for the amount of $4,500 in delinquent property tax.
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How Does Seller Financing Work in Real Estate?
Bidding
The auctioneer opens the auction at $6,000 because there are late fees. Obviously, this could be a great deal, and others will show up at the auction to bid more than the $6,000 starting bid.
For the purpose of our example, let’s assume you purchased it as the highest bidder for $30,000. No one in the world except those at the auction knows that you purchased a $100,000 property for $30,000.
Now, let’s get this sold.
How Does Seller Financing Work in Real Estate?
Advertising Property for Sale
To sell, we need to announce the deal to the world, using sites like Craigslist, eBay, and Facebook Marketplace.
Request a local broker and list the property on the Multiple Listing Service.
Place announcements on Zillow, Trulia and every possible electronic site.
Additionally, place signs on the front lawn and around the neighborhood. All ads and signs will have the words “Assessed value $100,000, must sell, $65,000 auction bargain. Call xxx-xxxx phone number.”
How Does Seller Financing Work in Real Estate?
Pricing
Meanwhile, every other $100,000 home for sale is bumping heads in competition with the other $100,000 homes, yet your home is 35% below market.
But Ted, you are leaving money on the table.
That’s right. You’re 100% correct. However, the world does not know that your purchase price was $30,000, and your selling price is $65,000.
This is a significant margin of profit, and your $65,000 price will attract bargain hunters.
How Does Seller Financing Work in Real Estate?
Motivated Buyers
It gets better. Hundreds of would-be buyers are painfully turned away from the bank because of poor FICO credit scores.
To the bank, it doesn’t matter if these people have a good, high-paying job or have been employed for 10 years or more in the same job.
Banks have rules and standards to run their business. Poor FICO scores do not fit the standards.
How Does Seller Financing Work in Real Estate?
You’re in Control of Your Destiny
As entrepreneurs we do not follow the rules of the bank.
We can:
- Buy and sell
- Use brokers, or do it ourselves
- Advertise with a professional, or do it ourselves
- Get legal forms from the title company
We can control our destiny. The title company will always tell us what is legal and what is ethical.
Bargain prices attract anxious and eager new buyers. As sellers, we make the rules.
How Does Seller Financing Work in Real Estate?
Doing the Math
We want a down payment of $10,000. The buyer knows the value, and the buyer knows the price. Also, the buyer needs and must have financing due to their poor credit score.
What does seller financing usually look like? Here’s the math.
- Selling price – $65,000
- Down payment – $10,000
- Seller finance – $55,000
- Terms – 10 years, 120 months at $650 per month plus property taxes and insurance
At the close of 10 years, the new buyer will have paid you $78,000. Add to that the down payment, and you will have received $88,000.
Your purchase price was only $30,000.
Who holds the deed in owner financing? To mitigate risk, the seller should hold the deed.
Now you know the answer to the question, “How does seller financing work in real estate?“
How Does Seller Financing Work in Real Estate?
Conclusion
How does seller financing work in real estate? It’s an excellent way to earn streams of residual income, and a powerful combination is seller financing with tax defaulted property investing.
At a tax deed auction, you can purchase mortgage-free properties for 10, 20, or 30 cents on the dollar which enables you to also sell the property at a discount to attract bargain hunters and make a quick sale.
If you’d like to know more about Ted’s system, which is a powerhouse for generating profits, Ted provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
You can learn how to reap the huge rewards from tax lien and tax defaulted property investing! Get started today by taking advantage of Ted’s Free Master Class! Act now, it costs you nothing and will give you a big head start!
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