Rising real estate prices and interest rates have sparked memories for me of the 1980s, when I made my living as a real estate broker. Those were the days of 12% mortgages, which put home ownership out of the reach of many. Seller financing, where the seller rather than a financial institution makes the loan to the buyer, was a common way to buy and sell property without involving bank financing.
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I went three years without ever taking a client to a bank.
Today, cash deals have become the gold standard in real estate. I haven’t been aware of a seller carrying back financing for decades. But rising interest rates are giving some sellers an opportunity to broaden their opportunity set.
When someone references selling on a contract for deed, a mortgage, or a deed of trust, these are the legal names of the instruments used in seller financing. The following property owners may be candidates for seller financing:
1. Those with a lot of equity in their home and no immediate need for the sales proceeds other than investing them;
2. Those who want a higher rate of return than a bank savings account or CD;
3. When getting your price is more important than getting cash;
4. When tax consequences would improve if the purchase price was spread over two or more years; and
5. Those who own unique properties where bank financing is not available, like land or mobile homes.
Read the full article here by Rick Kahler, Advisor Perspectives.
