Watch other videos HERE
Is the return on investment with Seller Financing my property, worth it?
If you’re toying with the idea and considering possibly buying a property to sell via seller financing, or you own a property that you want to consider seller financing, we hope that this video is helpful for you in your discoveries. It’s important to understand some of the financial benefits of seller financing.
So, we’re going to dive right into seven things to consider.
Number one, the buyer pays up front. So, they will pay a down payment, which is typically 10-15% of the purchase price, which the purchase price is often, not always, but often a higher price than market value. So, they’ll pay that upfront, which is more cash in your pocket on the front end.
Number two, is that the buyer pays the taxes. Since, they own the property that $100, $200, $300, $400 a month or per year, few thousand dollars per year taxes is actually now the buyer’s responsibility and not yours, which can dramatically increase the cash flow of the return.
Buyer pays all maintenance and repairs. So, this is a big deal. That budget of 10-15% whatever you’re budgeting for maintenance, we don’t have to do anymore because the buyer is now responsible for all maintenance and repairs, including foundation work, roof work, any type of repairs. Since you’re now the bank, just like a home that you might live in where you have a mortgage on it, the bank doesn’t pay any maintenance, and similarly with seller financing you would not pay the maintenance and repairs, the buyer does.
Number four, just for added emphasis, buyer pays all maintenance and repairs, ’cause it’s that big of a deal.
Number five, the buyer pays HOA fees. They’re paying those HOA fees, they might have on a condo, town home, property in a planned urban development community, those HOA fees are now the buyer’s responsibility.
Number six, buyer pays you interest. So, rather than rent coming in, they’re paying a mortgage payment that’s amortized over 30 years. And as we know with amortized loans, the interest is primarily on the front end, and so for the first 10-15 years, that interest is added and not reduced from the principle. So, $1,500 payment monthly, $1,300 of that is interest and $200 of that goes towards principle, so that interest of course is what you have as a part of cash flow and return.
And number seven, upfront appreciation capture. Like I was mentioning earlier, oftentimes the homes are sold for more than market value. We’ve seen properties that were valued at $220,000 selling for $250 or $275. And oftentimes if you can buy those properties at a discount, say you buy a property for $150,000 that’s worth $250,000, and you seller financed that property for $300,000 of course that’s a really good scenario that you don’t always count on, but sometimes they’re out there. Then that $150,000 in equity or appreciation that normally would take 10, 20, sometimes 30 years to capture, you capture right on the front end with that seller financed note. So, that can be a big deal as well.
So, I hope this is helpful to at least understand some of the metrics behind the analysis that we do. If you want to run a scenario we do have a financial calculator for seller financing. A pro form so to speak, available for your use on our website. Or contact us, we’re happy to answer any questions and explore this more with you.