In the previous article of this Creative Finance Series, we discussed using your existing equity to help you finance an investment property.  Here, we discuss:

Part II:  Seller Financing

Seller, or owner, financing is when the owner of a piece of real estate agrees to lend you some, or all, of the funds to purchase said piece of real estate.  Generally speaking, the interest rate that you, the buyer,  may get from the owner is negotiable; you may get a rate that is slightly lower than the market rate (there are typically no points to pay at closing), or you may have a slightly higher rate (if the seller wants to take advantage of the fact that you are not using your own cash).  These loans may be set up as a balloon payment, and are typically non-recourse loans.

The seller may opt to provide financing for any of the following reasons:  for certain tax benefits, to ensure a constant flow of income without the expense of holding a property, or to provide an incentive to a potential buyer. (In relation to Part I of this Creative Finance Series, it also provides an opportunity for the seller to receive their equity with interest, thus giving a higher rate of return than they would have otherwise received.) The benefit for the buyer, of course, is the ability to purchase a property without using his/her own cash.  If the buyer has no cash to use as a down payment, this may be the jumpstart needed to start building wealth.  Or the buyer may decide to use his/her cash in another vehicle that provides a higher rate of return that will in turn pay for the owner-financed property.

For related articles, click the links below:

How does seller financing work in a home sale?

Seller Financing

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Ofer Goldenberg is the Owner and CEO of Capital Growth Investment.