Monday, December 16, 2019

Why Sell a Home with Seller Financing in Central Minnesota (Part 1)?

My mentor always told me that a confused mind says no.  So let's start with a simple broad based definition of what Seller Financing is, for the purpose of this article, then we can get into the benefits.

Seller financing broadly defined, is anything short of the seller getting all of his/her consideration (money or other) all at once.  If the seller is waiting for any amount of time for any of their money, that is seller financing.   It's also called seller participation, because the seller is participating in the future of the property, even though they've already sold it.   Just because they sell, doesn't mean they need to get paid. 

There are just as many alternatives within seller financing as there are stars in the sky.  I will focus on the most common that we use and focus on for this quick post. (Sub2, Options, Lease Options, Seller Carry Back).

Buying Sub2:
The Sub2 option is the most common of all seller financing models that we've used, and the most elegant, (imho).  Sub2 is short for Subject to, which is short for Buying Subject To the existing mortgage.   In a nutshell what this means is title (ownership) transfers, but the financing stays in place.  If Bob and Suzy Smith own the property and they're selling to Ira Investor, Ira gets the deed to him, and the loan isn't touched.  It's still in Bob and Suzy's name and Ira keeps paying the loan going forward.   The loan stays in place, and Ira becomes responsible for it.  This is not a legal responsibility, but a moral responsibility.  Ira is making the promise to pay, or committing to make the payments, and so he is responsible for this obligation.  Legally though, it's still in Bob and Suzy's name, so they ultimately bear the responsibility of that loan since they were the ones who signed the note.

The benefits of selling this way are 3-fold.  Number one, usually you can command a higher price for the home.   First off, if you want an all cash offer, it will be much lower if you can't offer terms (seller financing).  There are really two sides to the scale, price or terms.   If you want the highest price, you need to be willing to accept the worst terms.  If you are willing to consider a lower  price, then all-cash can be an option for you.  All-cash is just a term of the sale.  Sometimes it's not great.    So selling Sub2 is a great option to get a higher price.

Additionally, the seller's credit is positively impacted by having a performing loan on their credit profile.  As each month's payment is made, the credit profile gets stronger and stronger.

Lastly, the speed of sale is usually a positive for the seller.  The seller oftentimes wants a fast sale, or a solution to a problem property.  This type of transaction can happen in as soon as 2-3 days, once title is checked out and loan balance is verified.  We've closed in as soon as 5 hours on Sub2 deals.  It's a great strategy for solving problem properties quickly.

I uploaded a quick video of how we do this on

With the goal of keeping these short, I'll push the other strategies into another post.

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