Learn How To Be The Bank
Did you know when you sell your house and a bank handles the financing, that the bank makes way more money out of the deal than you do? Why not learn how to "Be The Bank"?
In a market when houses aren't selling because banks aren't lending how do you get your house sold?
Simple, offer owner financing!
Think of owner carryback financing as simply a way to ensure your house gets sold. Instead of getting a lump sum payout you're just getting a payment stream over time.
In some ways carrying back a mortgage can be an even better deal for you, the seller. There can be tax advantages, you get a safe, well secured income stream (after all you are already familiar with the collateral). And you get to move on with your life and not have to worry about a vacant property or dealing with tenants.
DiscIaimer: I am neither an attorney nor a CPA. However, I am an investor and knowledgable about this subject. You should always seek professional counsel before taking any action.
In a market when houses aren't selling because banks aren't lending how do you get your house sold?
Simple, offer owner financing!
Think of owner carryback financing as simply a way to ensure your house gets sold. Instead of getting a lump sum payout you're just getting a payment stream over time.
In some ways carrying back a mortgage can be an even better deal for you, the seller. There can be tax advantages, you get a safe, well secured income stream (after all you are already familiar with the collateral). And you get to move on with your life and not have to worry about a vacant property or dealing with tenants.
DiscIaimer: I am neither an attorney nor a CPA. However, I am an investor and knowledgable about this subject. You should always seek professional counsel before taking any action.
“Don't Try To Do This Alone! You Need At Least A Good CPA, Attorney, and Title Agency on Your Team!”
Don't Try To Do This Yourself!
There are many many pitfalls to avoid, but the rewards can be well worth the effort.
Don't try to do this alone. Sure, you can draw up a note and a mortgage on a paper napkin and make it "legal" but that would be a big mistake. Have a real estate attorney help you draw up the necessary documents. Have a Title Agency handle the closing for you. Discuss everything you propose to do with your CPA ahead of time. The tax consequences one way or the other can be huge.
Start with a book or researching online (like reading this lens) to start getting ideas and to begin to understand what is possible. Then get a professional to help you get everything all neat and tidy.
Don't try to do this alone. Sure, you can draw up a note and a mortgage on a paper napkin and make it "legal" but that would be a big mistake. Have a real estate attorney help you draw up the necessary documents. Have a Title Agency handle the closing for you. Discuss everything you propose to do with your CPA ahead of time. The tax consequences one way or the other can be huge.
Start with a book or researching online (like reading this lens) to start getting ideas and to begin to understand what is possible. Then get a professional to help you get everything all neat and tidy.
“My goal is to introduce you to the concepts here. Your next stop should be the library or Amazon.”
Owner Financing on Amazon
“Sometimes it helps to remember that you are attempting to buy your prospect's money with your house!”
Be The Bank
Think about this for a moment:
When you sell your house the conventional way (i.e. your buyer trots down to the bank to get a loan) all you get is the price you agree on.
But how much does the bank get?
Answer: 2 to 3 times as much as you got, simply for carrying the note!
Kind of makes you want to be the bank doesn't it?
When you sell your house the conventional way (i.e. your buyer trots down to the bank to get a loan) all you get is the price you agree on.
But how much does the bank get?
Answer: 2 to 3 times as much as you got, simply for carrying the note!
Kind of makes you want to be the bank doesn't it?
“The Note is the buyer's promise to pay. The Mortgage or Deed of Trust is what secures the Note.”
There Can Be Lots of Parties To A Transaction
In a traditional deal there are generally 3 parties; the seller, the buyer, and the bank.
The seller may or may not get their price but the bank is the party that makes the real money in the transaction.
In seller carryback or owner financing there may be 2, 3 or even more parties involved.
The seller may finance the buyer and hold the note and mortgage the whole time.
Or the seller may hold the note initially, but get quickly cashed out of all or part of the note by a note buyer.
There could even be multiple notes held by multiple parties. Whatever it takes to get the deal done. Depending on how long they are willing to hold the note the seller could end up getting much more than their asking price on the house.
The seller may or may not get their price but the bank is the party that makes the real money in the transaction.
In seller carryback or owner financing there may be 2, 3 or even more parties involved.
The seller may finance the buyer and hold the note and mortgage the whole time.
Or the seller may hold the note initially, but get quickly cashed out of all or part of the note by a note buyer.
There could even be multiple notes held by multiple parties. Whatever it takes to get the deal done. Depending on how long they are willing to hold the note the seller could end up getting much more than their asking price on the house.
“A Contract for Deed or Installment Contract means they pay you first before you deliver the deed.”
Contract For Deed
An Installment Sale Contract or Contract for Deed (also called a Land Contract) is sort of like a layaway program with benefits.
The buyer gets the use of the house and makes payments on the house but they don't get the deed until you get paid in full. This is an added layer of protection for you, but not as much as you may think.
Sure, you still have legal title (it's your name on the deed), but your buyer has equitable title (meaning a judge is probably going to get involved if you have to foreclose).
There is a real risk for your buyer in this type of arrangement. What happens if you get sued and a lien gets attached to the property they are buying?
On the other hand what if they don't maintain the property and let the grass grow knee high and you get hit with a code enforcement lien (since your name is still on the deed).
All things to consider...
The buyer gets the use of the house and makes payments on the house but they don't get the deed until you get paid in full. This is an added layer of protection for you, but not as much as you may think.
Sure, you still have legal title (it's your name on the deed), but your buyer has equitable title (meaning a judge is probably going to get involved if you have to foreclose).
There is a real risk for your buyer in this type of arrangement. What happens if you get sued and a lien gets attached to the property they are buying?
On the other hand what if they don't maintain the property and let the grass grow knee high and you get hit with a code enforcement lien (since your name is still on the deed).
All things to consider...
Property Cash Flows
If You Can't Sell, Become a Landlord!
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Like Your Own Private ATMs
You sold your house! Now what?
How about learning how to create assets that spin off cash even when you're sleeping!
A worthwhile blog about creating assets from scratch.
How about learning how to create assets that spin off cash even when you're sleeping!
A worthwhile blog about creating assets from scratch.
Having Trouble Selling Your Home?
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bechand
Jul 17, 2011 @ 11:20 am | delete
- i am glad mine is almost paid off ! Never thought of doing this ...
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scarlettohairy Jul 16, 2011 @ 2:54 pm | delete
- Lots of good common sense information here. Great lens.
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Chris-H
Jul 16, 2011 @ 3:06 pm | delete
- Thank you! I'm glad you enjoyed it. I hope it helps someone...
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Tolovaj
Jun 28, 2011 @ 11:57 am | delete
- It is totally new concept for me. I do not think in our country this is possible... Thanks for info!
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tssfacts
Jun 15, 2011 @ 6:58 am | delete
- This is great information. Back in the days my parents did this all the time. When I had my own real estate office owners (sellers) would not even listen to such things because of lack of knowledge. Some wished they had because they would have at least seen some money instead of losing it all together.
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A Bit About Me...
I am an investor, I serve on the Board of my local REIA (Real Estate Investor Association), and I have been immersed in this subject for years. Remember this: The best deals are created on purpose!
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Chris-H
Dad, Entrepreneur, Poet, Philosopher, Author, Real Estate Investor, Blackbelt, Student and Teacher.
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