What is Seller Financing and How Does it Work? [

www.biggerpockets.com/askbp074
Investing in real estate from a distance can be a great option for investors… IF the property manager is a rockstar. But how do you find a great manager when you can’t simply walk into their office? That’s the topic Brandon discusses today on the #AskBP Podcast. If you ever plan to use a Property Manager, this is one show you don’t want to miss!

[@rjonesyow]

owner financing is common in places where it takes longer to sell property, like rural farm land in upstate new york. some property sits on market for years . so more and more sellers are trying owner financing. i made a deal and got 90 acres for 125k put 40 down and financed 80k for 7yr mortgage. i got five years left to pay and i own it . it is like car payment. done paying in a few years . do it while your still young

[@dominicyork963]

Wonderful explanation, 5 years later. Simple and To the point. thanks.

[@bassiboy4life]

Great video, thank you very much for this information Brandon. I'm currently reading your book 'The book on rental property investing' and I have to say as a beginner, this is absolutely amazing. With each page I turn my knowledge keeps on increasing. I originally knew nothing about real estate and this book has changed that hugely. Thank you for being straight up and honest and dedicating your time to writing a book because it has so much value and knowledge in it. I will be starting to analysing properties as soon as I've finished the book and read another Biggerpockets book I believe which is to do with estimating costs of repairs on a property. Thank you for your help

[@tigeroll]

Thanks for giving a perspective from BOTH the seller and the buyer! No one else does that.

[@brendaneaves100]

You rock sir. Thank you for being here on Earth.

[@adventureswithnikolev.4958]

Thank you for making this easy to understand.

[@brothernet]

very good talk. thank you. I may put your teaching into practice as I own some in the DC area

[@joeraver7145]

Great info, thanks for explaining it thoroughly and to the point

[@felipebarrios5633]

Great video. Thank you. Love the quote and inspo at the end.

[@EmmanuelOnitheoneandoni]

Short and direct answer. I like that

[@tobyswope6875]

Great explanation, thanks

[@chinoc7046]

Thanks Brandon!!

[@minimalistbae1986]

Thank you

[@kashfortheking]

On the due on sale clause, couldn’t a buyer talk to the bank and get an addendum to the clause so they don’t call the loan? I’m new to this but just wondering.

[@louiseduran4327]

Hi, this is by far the best explanation for a non native speaker. Please keep it slow or put subtitle next time. Thank you. Appreciate the video

[@ladyboss38]

Question: If a broker or mortgage company (if I am saying that correctly) cannot sell a home higher that what it is appraised or the appraisal value, then if a buyer (who becomes a seller) sells the house later on a seller finance option to another buyer, sells the house for a higher amount, due to the agreement being on terms, how could the seller be "cashed out" when the buyer (after the term year or balloon period) can only pay it off using a mortgage loan? Would a mortgage company or bank not lend the money to the buyer due to the selling amount being higher than what the house is actually appraised??

[@hchyan9871]

so what happen if the buyer stop paying the monthly payments can i foreclose as well - is it complicated ? due to the reason they are now the title holders ?

[@edisonjasonbarrios4127]

Great. But like me I am just an assistant to an investor and most of the call I made they keep on asking about terms because we are asking them if they would agree or open under a creative terms. What is the best way to explain regarding terms?

[@edmandell3064]

If you continue to make the payments to the bank and you place the property in a land trust doesn't that remove the due on sale clause as an issue?

[@don-b1o]

I feel like this could’ve had a much better explanation, especially for being 7 minutes long. For example it could have included how brokers would be paid in this arrangement and what the process is for having the title transferred and how to protect yourself in the buy sell agreement.

[@LightGesture]

Yes, no one is talking about the actual process and real figures and real how to get the ball rolling on it.

[@XRPeakyBlindAR]

Could've taken the 2 minutes it took for you to wrote this complaint. And added 5, and explained it yourself. This gimme now generation is sickening. 7 minutes. seven. SEVEN. wow. How many minutes do you waste per day writing silly shit like this

[@MikeOtranto]

The seller financing deals I have done have been off-market deals that were not listed. The listing agreement lists how and when the agent is to be paid. The only time there has been an issue with the commission is with a lease with an option to buy. The agent get's paid at closing (when the buyer buys the house).

[@upcycledwear]

With Seller Financing, what prevents the seller from taking a loan on the property while he's collecting from you? Does this go through an Escrow Company??? I am in California

[@BornOfAsh]

Question for Seller Financing. Is there Any incentive or what can I say to someone to Fully Owns their home with no mortgage payment, and a ton of equity bc they've lived in it for 30 years, they just pay the taxes and electricity every year to live there, What incentives Do THEY have to sell a home on dor Seller Finance? Anyone can answer

[@lostintime8651]

Is there any way to find if a property that is owned free and clear? Is it public information? Can I call the city/town? Website?

[@LightGesture]

If anything, you can do the math backwards about it. But no. --What you can do is look how long they have owned the house, and that could give you a clue.

[@treystills]

Contact the county records office in which the property is located. Sometimes the county records website may have a search feature where you can find out if the property is owned free and clear.

[@u.p1117]

Subscribed

[@BigmoneyBryan]

Thanks Brandon . But to everyone here I was wondering if I qualify for 475 but need 30 down can I get partial seller finance and recieve that 30k to use as my downpayment ?

[@007mia7]

Is there a standard interest rate for seller financing?

[@breathetoprosper]

Great vid

[@Zerokool55]

If you use seller financing can you still get first time home buyer loans for the second property? Or is it better to do the first one as an LLC and save the first time homebuyer ?

[@cedricharris7391]

Great question! I think it’ll depend on which first time homebuyer program you are going with/state but I know that it isn’t necessarily the purchasing of a home that determines your eligibility meaning, if your parents purchased a home and had you on title as well OR your parents/spouse pass away and you are gifted ownership of the property that would still disqualify you as a “first time homebuyer” and from my understanding in order to qualify you have to have not been on title to a property for the past 3 or 5 years. Something like that, I went to a seminar and they went over that section briefly so hopefully someone who understands it better can hop in this comment thread as well! Hope your journey is going well

[@grownupgaming]

If I am a retiree why would I want to sell only to receive a monthly payment when I could sell and get all the money at once? Is this due to tax reasons? Otherwise, I am not even sure how long I will live, will i live to see the end of the payments!

[@GabrielSilva-ct8ue]

I'm in market for my first RE investment and I have a great opportunity with a seller open to seller financing. This may be a noob question that I am about to ask, and I apologize in advance. The seller's property mortgage was paid off recently (yay!) but seller took out a HELOC to purchase his new home. Would that current loan effect our seller financing process in any way? Is the HELOC linked directly to the property? Again sorry, I'm new to this, thanks for all the help! Love BP!

[@lostintime8651]

yes

[@fluffyhoneytina]

Yes it will..the heloc is secured by the property..if he don't pay his heloc..they take his house.

[@lukasholzmann8642]

great video brandon! is a down payment a requirement when i am on the buyer side? if not, this seems like a great way to get into real estate investing with a small amount of money.

[@biggerpockets]

+Lukas Holzmann Hi Lucas! Usually a down payment is required. Learn more about it on BiggerPockets.com! www.biggerpockets.com/renewsblog/2015/07/29/seller-finance-investment/

[@sidwhiting665]

Down payments are not always required. It depends on what you negotiate with the Seller. Maybe if you are a very trustworthy person and have other assets you can pledge as collateral, the Seller won't require one.

[@sunoveristambul]

@beardybrandon more of this as markets freeze

[@AlexAlexanderRVparkinvestor]

Do you use a mortgage servicing company on your seller finance deals?

[@LightGesture]

You can. They can give you a heads up "hey, this client of mine is looking to sell their house, they are willing to do seller financing." How they get commission Idk, though. up to them and the seller to talk about that beforehand, I suppose.

[@calebcooper2645]

Thank you! I have a question though, why would a seller want to do payments instead of a lump payment like with a bank loan? What’s the benefit to the seller to do seller financing? Thank you so much for all your great info!

[@2kreative1]

Capital gains taxes

[@megw2329]

More return

[@BillSias-op7xw]

That's good, but go on BP forums, look up Bill Gulley, he has the best advice on financing of anyone, he got out of BP a long time ago but his information is solid gold.

[@ivysmith2794]

I live in the Bahamas and I don't know why people don't practice seller financing over here.. I mean like why not?? It's ridiculous!

[@lostintime8651]

How do you know that no one does that?? Maybe they just haven't been asked. I would think they would like to make some extra money on the interest you are going to pay them.

[@sprintbulls]

this may seem like a silly question but I how are the payments tracked...what happens if the owner starts to dispute several months of payments. are monthly payments processed through an intermediary?

[@thesellerfinancecenter7585]

We always recommend you use a loan servicing company. When you work with a bank, there is a function at the bank that manages the loan and directs all the payments to the right places and holds the property taxes and insurance in escrow. Loan Servicing companies can perform the exact same function for a buyer and seller in a seller financing project.

[@sidwhiting665]

In simplest form, you could just mail checks to the person who owns your note and keep copies of canceled checks showing proof of payment, or request that the Seller write you a receipt every month that you store in digital format or a fireproof safe or safe deposit box at your bank. . Or you can go (slightly) more complicated and use a payment processor. There are many types. For example, if your bank offers online bill pay, they should keep a history of all payments made thru their system that issues checks. If the Seller disputes the payment, you can simply have the bank give the payment tracking numbers. Careful of using this, however, because often the bank archives these transactions after 3-6 months and you have to pay a research fee to get them. Another method is use loan service company like Seller Finance Center suggests. A third options is some title/escrow companies offer that service. A fourth options is your CPA might offer a payment processing service. . Remember, a Seller who is ethical won't cause you any trouble unless they truly believe there is a missing payment, and most likely they will give you the chance to correct their records or make good on the missed payment(s) before running straight into the foreclosure court. But as Brandon says, many Sellers are not ethical and so you should always CYA (cover your ....well, you know!) and keep detailed records.

[@missdesireindependance5194]

You can get a letter notarized stating the last month of payment and both the buyer and seller sign. You can also pay with a check and keep your bank statements as proof of payment

[@sarahm2878]

The seller holds the title in a title theory state, though.

[@joshmnky]

That's what seller financing is, but how does it work? I know there must be a third party involved, unless you're just working off handshakes. Who drafts and protects these contracts? Give me the details!

[@lostintime8651]

april crossley has a great youtube video on it.

[@joshmnky]

@@lostintime8651 This is funny. I had never heard of April Crossley up until yesterday! Her video on seller financing was exactly what I was looking for. I highly recommend anyone reading this to check her channel out.

[@melissadill-barnett7975]

Do you still have to apply for a mortgage? Or is there another application process you have to go through?

[@adamcosta4610]

The seller is the Bank

[@LightGesture]

The application process you are thinking of would be the contract held between you and the seller(lender, at this point.) You assume title, deed, escrow, insurance, etc.

[@gracemorabia8003]

how would you need to do to start seller financing

[@LightGesture]

Speak to a loan officer if you're a buyer. Or talk to a CPA.

[@travismullen]

I don’t feel like you answered what’s in it for the seller enough. Can you elaborate on that? Is there any tax incentives on seller financing vs selling regular?

[@loganmoore8633]

Travis Mullen you get to charge interest on the loan

[@LightGesture]

I just wrote up in an above comment, but for your sake, I'll copy and paste. Check this out: I just missed a deal. I wanted to buy for $180 $20k DOWN. My friend sold it for $185k. Here's what he missed...: $185k -$9,250 (5%) real estate fee. Closing costs he lucked out and they assume them all. He lucked out on down time because our market is stupid hot, usually less than 3 days on markets. --However, his daughter drug her feet for 5 months to finally sell the freaking place. -$5,000+ (20% capital gains tax on "equity"...They owed $140-160k.) -$3,500 remodel I did for them. -$5,000 new carpet, paint, repairs Total out of pocket: $22,750 Total amount of equity they earned after the sell of the house............. ........................................... $2,250. WOW... they could have made $10-20k upfront with my down payment... and $100 in interest every month, after 2 years, more than what they just walked away with......> Think about that for a short minute, it's obvious.

[@TommyMccoyMedia]

I just got offered $22k upfront and the rest in payments on my $56k lot of land. Very skeptical on going forward with it.

[@garciaproducshuns]

What did you end up doing with the lot? Did you sell on the mls?

[@TommyMccoyMedia]

@@garciaproducshuns sold for 42k .

[@toold45]

@@TommyMccoyMedia wouldn’t it have been better for yu to go the seller financing route

[@cynthiarodriguez7259]

What contract do you use when doing seller financing ?

[@cayman5906]

In what world is it more beneficial to get $100k over a 5-year term vs. the seller actually just listing the property and getting $100k up front? I still don't understand... Please help!

[@deeel4750]

They will avoid capital gains tax and collect interest on the loan they give you

[@LightGesture]

​@@deeel4750 Precisely. I just missed a deal. I wanted to buy for $180 $20k DOWN. My friend sold it for $185k. Here's what he missed...: $185k -$9,250 (5%) real estate fee. Closing costs he lucked out and they assume them all. He lucked out on down time because our market is stupid hot, usually less than 3 days on markets. --However, his daughter drug her feet for 5 months to finally sell the freaking place. -$5,000+ (20% capital gains tax on "equity"...They owed $140-160k.) -$3,500 remodel I did for them. -$5,000 new carpet, paint, repairs Total out of pocket: $22,750 Total amount of equity they earned after the sell of the house............. ........................................... $2,250. WOW... they could have made $10-20k upfront with my down payment... and $100 in interest every month, after 2 years, more than what they just walked away with......> Think about that for a short minute, it's obvious.

[@tusharprasad2734]

Starts at 1:19

[@BrewCrew-tq8oy]

This guy wants 35k down on a 139k home.He needs the cash so that’s why he’s asking for 35k, but he’s willing to be really flexible with the seller financing terms. He offered loan only payments with a 30yr amoritization and balloon payment in 3-5 years. Thoughts?

[@tlouandtherest4378]

Student input If seller gets the price the buyer gets terms , give the seller his price , you be sure as a buyer to dictate terms as a investor the profit on exit should be there bottom line

[@MSHairCandy]

How do I offer the $100,000 and act as the bank?how...or am I missing something

[@devsehgal7432]

MSHaircandy BP the down payment offered by the buyer, is not a deposit, but part of the payment. So you load 80,000 with an interest over a negotiated amount of years

[@devsehgal7432]

By 80k I mean if the buyer offered 20k as payment

[@LightGesture]

You "offering" $100k is because that's essentially the loan amount after a downpayment.. Once the loan is paid off, the house is indeed YOURS "outright". Until then, the bank still technically owns that house, as you should know.

[@missdesireindependance5194]

You make the buyer pay a down payment in cash and make monthly payment until home is paid for. You can get a lawyer or tittle company to draft up a contract between you and the owner.

[@justSTUMBLEDupon]

As easy as this should be to understand I'm not getting it 😩😫 I had to watch the video 3 times to figure out how the owners of the property do this or how I can be "a bank".

[@thesellerfinancecenter7585]

Yes, I agree it can be a little confusing because when I bank lends money, they literally release money (thru a title company) to help a buyer purchase a home. However, when a Seller provides the financing, they are not actually releasing money to the buyer. What the seller does instead is effectively accept a promissory note from the buyer, in addition to a down payment, in exchange for the title to their home. So, in both cases (Bank Financing or Seller Financing) the buyer of the home has gotten financing. The only difference with Seller Financing is that they need to payback the seller rather than the bank. I hope that helps...

[@LightGesture]

@@thesellerfinancecenter7585 Basically. What happens at the end of a 10 year finance, though? You owe the entire amount up front?

[@missdesireindependance5194]

You will hire a lawyer to draft up a contract between you and the buyer. The buyer will give you a large down payment plus an agreed interest rate.

[@cfc6211]

As a buyer if I have to give the seller 20% down then I may as well just go through the bank which requires 20% down 🤷🏽‍♀️

[@mattmoran7391]

Could negotiate better rates

[@Apizur]

They seller lends you the equity, not "the money".

[@JustinVictorino_Joeyyy]

Has anyone here done seller financing? Did you have an attorney every time?

[@Intheserealestatestreets]

Yes, I have done it as the seller and as the buyer. I use my attorney to draw up my paperwork each time and encourage the seller/buyer to do the same.

[@shelleybrauer3734]

so what about interest

[@sidwhiting665]

Whatever rate you agree to. Plug it into an amortization calculator and your payment change accordingly.

[@Bennysbaked]

But why would any seller prefer to get paid every month instead of just get all the money all at once?

[@LightGesture]

They sell the place and then they would have to pay property gains tax. Then they pay 1/2 closing costs and possibly radon tests/mitigation, as well as inspectors, and possibly attorneys, and probably wait for a while to close (This could be eliminated by having a preapproved buyer, though).

[@missdesireindependance5194]

I guess if it’s hard for them to sell their property.

[@dql1us]

Why do you use microphone for. Sound it is not really good and it’s cover your face and cover your emotion for your good explanation

[@LouisvilleRecruitingReport]

What if the seller dies

[@bmfitzgerald3]

you still owe the money to whoever they handed off the promissory note to (one of their heirs, for example)

[@LightGesture]

Generally if they try to seize the property or foreclose, you show them "hey, this is my property, I have liability for XYZ." --Now if they wrote up the contract right, the balance would still get paid off to a close relative or whatever, perhaps one that is on the deed, or if they're, for instance, have a spouse on the loan and title. My wife is on my title, but not on my loan. If I die, she can try to sell the house before foreclosure, but she is not liable if it forecloses.

[@going2sleep]

Bad explanation. We are about to enter into subject to heaven 2019!

[@RaysOfPivot]

From my research avoiding the due on sale clause makes it really hard to do a "subject to"

[@aamirbasir5464]

So seller financing is basically “ rent to own “ ?

[@LightGesture]

@@krob123085 Not true. You don't "RENT". You are 100% liable for everything, escrow, mortgage, insurance. YOU ARE THE OWNER. If you miss a payment, you forfeit the contract. If they don't pay the mortgage, THEY forfeit the contract and you now assume THEIR LOAN, which would generally be MUCH less than what you were paying them originally!!! This is NOT even REMOTELY a "rent to own."

[@Intheserealestatestreets]

NO. With Seller Financing you get title right away. RTO is more like lease options.

[@KA-rt2vh]

Bla bla bla and no real value info