Future Payments or Cash Now...Creative home sellers who offer seller financing to
potential buyers can often sell their houses more quickly (and at a higher price) in a slow market. While applying
seller financing techniques isn't more difficult than traditional real estate sales, it is important to recognize that
the buyers looking for seller financing represent a different target market than typical bank-financed customers. Similarly,
the process for obtaining a large cash payment for the seller after a note is created varies from the conventional real estate
closing technique as well. Fulfilling a Seller's Need for Cash In some seller-financed
real estate situations, the property owner may have an immediate need for more cash than is available from the scheduled principal
and interest payments. This situation often comes about when the seller needs to have enough money to use as a down payment
for their next real estate purchase. In order to quickly obtain a large proportion of the money due from the loan they
just created, the seller could sell the monthly note payments to a buyer for a lump sum of cash. By locating someone willing
to buy the note payments, the seller will have ready cash for a down payment or any other pressing financial need. In
order to streamline the seller finance sale situation, it is advisable to have potential buyers for the newly-created cash
flow at the ready. A seller can start looking for buyers before the note is created, or even before a seller-financed
buyer is "lined up". This way, the property seller could have a buyer for the payment stream ready to make the purchase
as soon as the new private mortgage is created. Locating the Right Note Buyer But what is the
best method to find these note buyers? In stark contrast to locating seller-finance buyers for the real estate itself, a classified
ad in the paper is not the best option. Most people looking to purchase a stream of monthly payments do not look in the newspaper
for potential cash flows to add to their portfolios. An alternate marketing strategy is required for finding note buyers.
In recent years, the Internet has become the best place to find cash flow purchasers. Using keywords such as "buy
monthly payments" or "buy mortgage payments" at a popular search engine website should lead to many interested
buyers. Sometimes there are so many potential buyers, it can be difficult to figure out where to start. Also, cash
flow buyers tend to have distinctly different financial parameters; an opportunity that meets the needs of one person perfectly
may not be attractive at all to another. Therefore, it is often best to work with someone who could give the seller a general
idea about how notes should be structured. Using Note Finders... In the secondary finance industry,
a unique group of individuals exists who specialize in locating note buyers. These cash flow specialists - often known simply
as "finders" - have a unique understanding of what most buyers are looking for. These finders are happy to work
with agents and their clients. Many of them utilize online marketing and have Internet websites to facilitate the buyer location
process. The best of the bunch also look in the newspaper for property sellers offering financing, so sometimes a good
finder will contact the seller if their property is advertised as FSBO. Finders specialize in helping property sellers locate
buyers for secured notes. Once in contact with a finder, the seller should explain the details of the situation. While
note finders won.t be able to offer any legal advice or assist with the creation of a note, they are qualified to give general
recommendations about what types of terms are attractive to note purchasers. Most importantly, note finders will be
able to help locate a buyer for a newly-created cash flow. Remember, these finders are not note brokers, meaning
they will not "show" the seller's note to buyers or act as a representative. They will only pass the information
along to someone who would be interested. Once a commitment to purchase the cash flow has been established, the buyer will
step in and complete the deal. When working with a property seller who needs a lump sum of cash immediately after selling
their real estate, contacting a finder early in the process of creating a real estate note makes sense. By involving
a qualified note finder BEFORE a note is created, the property seller can receive invaluable input about the payment characteristics
that note buyers prefer. Without this knowledge, the property could sell quickly with the creation of a new
note, but the seller might end up collecting the payments long-term instead of being able to quickly "trade" the
future payments for an upfront cash settlement. If the property seller will need a large amount of cash quickly, it makes
sense to plan ahead for a buyer to purchase the cash flow and involve the services of a note finder.
Different Demographic, Better ResultsAs explained in the last issue, seller financing
can be an extremely useful option to sell a house in a slow real estate market. Unconventional private lending is a great
way to increase the overall sales closing ratio. When the property owner is willing to "carry back" a note, it is
often possible to obtain a higher selling price and reduce the time needed to find a buyer. Plus, creating a note secured
by real estate can give the seller a steady, interest-generating income stream for their long-term future. The
Challenge: A Different Demographic Home owners who are ready to offer a private loan in order to sell their
houses are still faced with a stumbling block: how to find buyers in need of seller financing. Most property owners don.t
have any experience in finding individuals interested in buying a "high ticket" item like a home directly from the
owner. When property sellers work within the established real estate agent process to find buyers and close a deal
by "traditional" methods, it is generally safe to assume that the vast majority of these customers will qualify
for bank financing. In order to pursue private seller financing to sell a home, however, a property owner will need to attract
home buyers who do not have adequate credit to buy real estate - a significantly different demographic. The
key to successfully orchestrating a seller-financed real estate deal is getting the right buyers through the door - just like
a traditional property sale. In order to get motivated buyers interested, the seller will need to use a targeted
marketing technique designed specifically for the "unconventional buyer's market". The most effective advertising
method to tap into this distinctly separate pool of buyers is surprising to some. Unconventional Marketing
The seller's best strategy for finding their credit-challenged buyers would be to list the property in places that
are frequented by individuals that do not have a real estate agent. The newspaper is one of the best places to start putting
out the word. The majority of home buyers looking for seller financing start by searching the "For Sale By Owner"
ad listings in the local paper. Seller financing originated and took off via this print medium. Even in today's Internet-dominated
business world, newspaper advertising continues to be an effective means to reach those looking for seller financed deals,
so it makes sense to start the advertising here. A simple sale ad including the line "seller financing available"
or "credit issues OK" should help to generate genuine interest from the right potential candidates. Orchestrating
the Deal Once interested buyers start coming around, the seller can choose to work with the party that brings
the most to the closing table in terms of the down payment. Of course, larger down payments are better than smaller amounts,
but it is entirely up to the property seller to decide what is acceptable. Once the details of the initial payment,
payment term, interest rate, and any necessary clauses are established, the buyer and seller could create a new seller-financed
note. If the seller needs money immediately to pay their down payment, the note terms can be specifically tailored to ensure
that it's attractive to cash flow buyers. Once the newly-created note is sold, the property seller will have "cashed
in" their future monthly payments for an immediate lump sum of cash. The details of the note creation are easily
handled with standardized boilerplate or the assistance of an attorney; some note sellers are able to manage the sale of their
home without any paid legal counsel at all. In fact, once the seller understands the potential advantages of seller financing
and takes the proper steps to market the property to the target buyers, the final steps in cementing the note deal are usually
much easier than expected
The Seller Finance SolutionSeller financing can be a great way to get a house sold
without slashing the price. By recognizing the millions of people who can't get traditional financing as potential buyers,
resourceful property sellers (and their real estate agents) can minimize their time investment in getting a property sold.
Even better, sellers who offer financing can usually get a higher asking price for their property, even in the slowest markets.
Clearly this is a win-win situation. Most home sellers never consider financing the buyer directly because they are
not aware of the benefits or don't fully understand how creating a note works. Let's take a closer look at the advantages
of owner finance. Three Advantages Seller financing is very powerful when the market is slow
or when there are many similar houses on the market. Just listing the house as "OWC" - Owner Will Carry - will make
the house stand out and attract more buyers. Because many individuals cannot get funding from a bank, offering financing will
open the doors to these prospective customers as well, essentially significantly increasing the pool of potential buyers.
So, advantage #1 is MORE BUYERS. Seller financing also brings the property seller another critical advantage . the
likelihood of selling for a higher price. Offering to carry back a note will not only greatly increase the number of potential
buyers, but also bring a unique demographic of buyers who are willing to pay more for a given property than the general population.
Advantage #2: MORE MONEY. Additionally, when the property seller finances the buyer, they get to act as "the bank".
That means they could structure the deal to collect interest. Over time, if the seller holds on to their note, this can add
up to tens of thousands of dollars in additional income. Advantage #3: LONG TERM PROFIT. The Seller's Strategy
Even when these benefits to "carryback" lending are made clear, many sellers are still hesitant to offer
financing because they are entering unfamiliar territory. It's a natural, human response -- everyone is uncomfortable
with new things. For many property sellers, considering owner financing when they've only dealt with buyers via
traditional funding is definitely "thinking outside the box". But once sellers understand the process, they are
likely to choose seller financing instead of the unattractive option of cutting the listed price or waiting indefinitely for
the "right buyer". A seller-financed real estate sale is simply a real estate transaction where the
seller acts as "the bank" or lending institution. The seller sets the sales price, determines and accepts
a down payment, and then finances the remaining balance. The final step is the part that may scare some sellers, but in actuality,
it can be very simple. Here is an example. If the sales price is $100,000.00, and the buyer gives the seller $10,000.00
cash (the agent.s fee will be deducted from this down payment), the seller will finance the balance of $90,000.00. The buyer
and seller would then agree to the terms, such as the interest rate and the total term, and use an attorney to create the
mortgage document and close the deal. From that point on, the buyer sends the seller monthly payments for the house he/she
has just purchased. Special Circumstances (and a Solution) The whole process can really be
that simple. But, there are some substantial differences between a seller-financed deal and one that relies on traditional
bank funding. First of all, the seller in this example does not receive a large, one-time payment at the time of the
sale. In fact, they will only receive the down payment, and in some situations, most of that will go towards paying the real
estate agent's fee. On the other hand, the seller will be receiving monthly payments at a decent interest rate, but this
income stream can't be used as a down payment for a new house. Since many home sellers are also looking to buy
another property, the seller will need to get enough at closing to pay their own down payment. Without this payment, the seller's
hands will be tied when they look to purchase another house and need to have a substantial amount of funds available. There
is a common solution to this issue, however. The Solution In order to get the money the seller
needs from the loan they just created, the seller could sell the monthly note payments to a specialist buyer for a lump sum
of cash. If the seller finds someone willing to buy the payments, now they can "have their cake and eat it too".
In summary. Step one: Use the seller finance option to find unique customers willing to buy the house at a higher
price than would have been possible otherwise and complete the real estate transaction quickly. Step two: Decide on
the terms of the deal and create the note. Step three: If the property seller needs immediate cash to buy another house
or for any other reason, their new incoming payment stream can be resold. The person who buys the future payments from the
seller will provide the funding to act as a down payment on a new house, and every party involved in the deal comes out smiling.
Seller Financing to the RescueThe Problem When it comes to
selling real estate, one of the most difficult and frustrating situations for sellers is when market conditions make it nearly
impossible to sell at the desired price point. A high initial listing price might be because the seller simply has an unrealistic
idea of how their house stacks up against the competition in the area, or because the owner needs to sell for a set minimum
price in order to pay off their loan against the property. With traditional property sales methods, the only way to
prevent the property from sitting on the market indefinitely is to keep dropping the price. Unfortunately, this technique
doesn't always work - especially if the seller is unwilling to "discount" their house by much. In areas
flooded with homes for sale, reducing the asking price slightly will not bring the desired result. In fact, it's common
that the property will continue to sit on the market without offers, alongside the multitude of other unsold properties with
similarly reduced prices. Anyone experienced in sales understands that making your product stand out from the crowd
is a critical technique for success. But if there's too much competition offering the same attributes, the only logical
way to attract the attention of serious buyers is to drop the price so that your property is a much better value than the
competition. In cases where the seller is too inflexible with their asking price, this is not a practical solution.
Without an alternative strategy, the seller is forced to keep the house on the market for an extended period of time with
an unrealistic asking price, hoping for the right buyer to come along. And as you know, that "Mr./Mrs. Right" might
NEVER materialize! The Seller Finance Solution Property sellers who want to both obtain their
desired price and close on the deal quickly should consider seller financing. Seller financing is a powerful tool to remedy
real estate situations that otherwise look grim. Many home sellers (and their real estate agents) do not see seller
financing as a viable option. In actuality, seller financing can bring new attention to the listing and invite a different
group of potential buyers - thereby opening up a unique, untapped market. A large percentage of people throughout the
country cannot get approved for bank funding to buy real estate because of their credit situation. Many of these people are
still in the market to buy a house, however. The "credit-challenged" are often frustrated with the limitations of
apartment living or being renters; as a result, many are willing to pay a higher price just for a chance to get seller financing
and improve their quality of life. A savvy property seller who recognizes this opportunity can salvage an unfavorable
situation and turn it into a bonafide seller's market. By using this type of creative financing, the seller could actually
end up getting more than the original asking price - without resorting to the questionable strategy of patiently waiting for
the "right buyer". Seller finance can enable homeowners to receive a favorable selling price despite bad
market conditions. In addition, the real estate agent (if any) gets to close a deal and move on to other sales, while a home
buyer with poor credit is able to become a home owner. It's one of those rare situations where everyone at the negotiating
table gets what they want. Paper Tigers Many home sellers never consider seller financing because
they don't understand the benefits. There are also common misconceptions that it's much too complicated to attempt
to orchestrate a seller financed deal, or that there are no buyers willing to sign a private note. Once a property
seller takes the time to learn about the basic process, the advantages of offering financing instead of a lower price to sell
their property become very clear. Plus, a little education about seller finance will make it apparent that drafting a secured
private note is actually a very straightforward process. The bottom line is seller financing can enable a home owner
to "have their cake and eat it too" - i.e., sell at the desired price, close the deal quickly, and even receive
additional income from interest payments as well
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