How Does Seller Financing Work In Real Estate?

Are you wondering how does seller financing work in real estate? In this video, I’ll explain exactly how this works and how you can leverage this for your real estate business!

Welcome back to the channel, everyone, it’s Nathan Payne. And today we’re gonna be talking about how to seller financing work in real estate and how you can use it to make money

By the end of this video, you’re going to know exactly what the heck is seller financing and how you can use it. By the end of this video, you’re going to understand enough how to explain seller financing, that you’re gonna be able to explain to a child how you can use seller financing to do more deals as a real estate investor, why sellers would be open to doing seller financing, how to make sure you’re doing seller financing the right way.

So what exactly is seller financing? Well, I’m gonna kind of explain to you guys, if you understand the traditional way of financing, when you want to buy a home, what do you do? Well, you usually go to a bank, most people don’t have cash, cash is whether you can just buy it straight up. If a house is for sale for $100,000, you take $100,000 and you buy it, if you have that amount of money, most people don’t have that kind of money. So they go to the bank, the bank enables them to buy the property where they bring a certain amount of money down. And then they pay the bank over 30 years or 15 years, whatever the mortgage is the length of term. And that’s how they buy a property. Usually it’s about 1015 20% down, the more money you bring down, the less your payment will be, the less interest you pay over time.

That is traditional financing. So when we talk about seller financing, it’s getting financing not from a bank, but it’s getting financing from a seller, okay, so if a seller finances you, you’re paying them, you’re paying them for the financing. And there’s a ton of different ways to do seller financing, you can do it with someone that has a house that they own free and clear, and you’re paying them as the bank, you can do subject to where you’re paying someone’s mortgage, you’re taking over the financing subject to the existing financing, right, the mortgage, it’s in place, there’s contract for deeds, there’s so many different ways.

But just to explain it to wrap it up, make it very simple for you. If you want to buy a house, traditionally, you go to a bank, and they give you an interest rate, they give you payments, they give you a term, they give you a length of the term. If you want to buy a house from a seller and you want seller financing. Well, they are your bank, they’re there who you’re making the payments to. That’s the only difference bank traditional financing, seller financing, you’re, you’re getting financing from the seller.

So why the heck should you get seller financing, if you can?

Well, guys, it’s a great strategy right now, especially with how the market is shifted, and how interest rates are like seven 8%, especially if you’re buying from banks, and they give you investment property interest rates, which are higher than if you’re going to live in the home, you’re getting personal residence, they obviously your interest rates are gonna be more because you’re not living in the property. It’s not personal residence. But why is it beneficial? Well, think of all the people over the last 13 years that have low interest rates at like 2.533%. If you do this, right, if you understand how to do seller financing, you can take over their mortgage payments, and inherit that that low interest rate. And that’s why it’s so beneficial right now, because instead of having to go buy someone’s property with a new mortgage and get a big traditional financing, you can just go to the seller and say, hey, look, I’ll pay you, let’s say the seller wants 250,000, you can say I can pay 250,000, I can give you some money down. And I can not only cover the mortgage payment, but I can pay you a little bit more. Okay.

And it’s really whatever you want to structure it. But that’s why so many people do it is so they don’t have to go get a loan right now. And that’s a higher interest rate. And they can just work with the seller and just take over their payments.

Okay, so that’s one of the main reasons why sellers sell to well, not one of the main reasons sellers sell to buyers, but buyers do it for sellers because they’re able to get better interest rates lower, lower payments from sellers and sellers benefit, because they’re able to sell their properties probably for a higher price. They get to become the bank, they get to make interest. So it’s beneficial all around as long as you do it the right way. Another reason why investors really like to get seller deals on seller financing is because there’s less risk for them. Okay, so what can happen is when you’re doing a seller finance deal with a seller, you don’t have to put down that much. Most of the time, there’s a lot of investors that are able to get into deals with no money. You know, it depends if it works for the seller. But if the seller has a property that they they’re, they’re literally have no equity, if they sell it with a real estate agent, they’re actually going to owe money because of the Commission’s seller. Sometimes sellers will just let the property go so an investor can get into a property without any money down and just taking over the payments. So that’s one of the other reasons why buyers investors like seller finance deals because there’s lower risk another reason why investors is like to have deals through seller financing is because you’re capped out on how many mortgages you’re allowed to have in your name.

So when you do deals through seller financing or working with sellers, there’s no cap, you can do as many deals as you want it. There’s, there’s nothing to stop you from doing 1000s or hundreds, it’s whatever. It’s really how many you can negotiate, but you are capped on how many mortgages you’re allowed to have in your name. So that’s one of the other reasons why sellers? Well, investors love it working with sellers. So you’re probably wondering, okay, this sounds great for investors.

But why would sellers be open to doing seller financing?

Well, there’s tons of different reasons. Okay.

So number one is sellers get more money. And then if you sell a property to someone, and it’s worth 250, if you sell it to them on terms or financing, you can ask for more money, you can usually ask for about 20% More money, because you’re willing to finance them. And people, not only investors, but other people who maybe can’t afford qualify for a mortgage, like maybe their 1090 nines, they don’t have the ability to for a bank to be willing to risk or finance them, give them a mortgage, you can charge someone more money for that. So the seller is going to get a higher asking price, they can also make monthly payment, get monthly payments with interest. So let’s say for example, if you’re a seller and you own a house free and clear, okay, you could sell it on the market, get to it for 250,000. Or you can sell it to someone for 320 charged about 20% More, and you can charge an interest rate for financing them for 30 years. So you could say look 250, I can get that right now listed with a real estate agent pay 6% closing costs, or I can sell it to someone for 3320 Get 3040 50 down and be making if the rate right now is 6%, six to seven, you can say hey, I’ll give you the existing rate that’s going on right now.

So now you not only did you make some money down, you get to make money monthly you become the bank. Why are banks so rich? Because they literally do what I’m the sellers that do seller financing do and if the person stops paying, making the payment, what can the seller do? Well, they can foreclose just like a bank can. So selling a property on terms, it is a good idea, and it helps you the seller make more money. So that’s why a seller would want to do it, they want to make more money.

Another reason why sellers would want to do seller financing is because they have low equity. So let’s say for example, over the last two years, you bought your property for 280. And let’s say right now, because the market shifted the house is worth 280, and you try to sell it on the market with a real estate agent, you have to pay them a commission whether that’s you know, you use one of these low listing low commission types that are like one 2%, or you use the traditional percentage, which is 6%. If you bought a 280, and you can only sell it at 280. Then if you’ve got to subtract the closing costs, you got to subtract the Commission’s from the agent, you’re losing money on a deal. So what can you do? Well, if you sell it to someone on terms, what you can do is say, Hey, I will get let you take over this mortgage payment. And because I have no equity in it, and maybe cut me in and five years, 10 years pay me out a little bit more. And that way, they don’t have to lose money right now.

That’s why sellers do it on top of they can make more money. If they’re in a sticky situation, it can help them out.

Before I move on to the next point, I want to give you guys something that really means a lot to me, I spent a lot of time making it. And I want to give it to you because I know to help you out, especially as we’re talking about seller financing, you’re going to need to have all the paperwork, you’re going to need to know how to structure all this stuff. And what I do is I’ve compiled all the paperwork for creative financing deals lease options, subject to I’ve compiled it all in my Payneless Wholesaling mind map that you can get for free if you want this type of paperwork, or at least to understand the process of how to do this, check out my mind map.

It’s like I said, it’s literally free. I’m giving it to you.

So you can go out and get deals and pivot the right way in this market change. So you’re probably wondering, okay, great. Now that I know what seller financing and traditional financing is used a bank for traditional use seller for seller financing, you’re probably wondering, how do I do it the right way? How do I make sure I don’t freakin screw up and do a deal and get myself into trouble?

Well, first thing you got to do. And what I love doing is you got to get a mentor guys, I’ve gotten mentors, all throughout my journey in this industry. I mean, the first thing I did as I got a mentor after I tried to figure this out myself, I actually not the first thing I tried to figure out myself struggled. So I got a mentor and these mentors can help you out a ton. That’s what I would recommend. If you want to make sure you’re doing this the right way. Get around people that are doing it, get a mentor, ask them questions and make sure you’re working with someone that knows how to do this and you don’t want to get a mentor that’s never done a seller finance deal and then put, you know points you in the wrong direction. So that’s what you need to do. Make sure you’re doing it the right way. Get a mentor get around people that have done seller financing deals.

That’s how you get ready and prepared to do this the right way. Another way to make sure you’re doing the paperwork and all getting all the information the contracts set up the right way is you need to have an awesome title company, you need to be working with the title company that once you get all the paperwork written up, you can send it to them, they can look it over make sure it’s all written the right way. That’s how I do a lot of my deals is I write it out in an addendum or a contract and then I send it to the title company, they review it and make sure it all is good. And then we do the deal.

Don’t try and do these deals without a title company in my opinion, that is very experienced because you could mess up and I’m not trying to have you guys mess up as you’re doing seller finance deals. So that’s another way to make sure you’re doing seller finance deals the right way is get a title company has done it before so you can make sure you’re safe and you’re protecting the seller.

I have a free gift for you guys. I already mentioned it earlier in this video, but you need to check out the mindmap because it’s going to tell you exactly how to do this process of seller financing. Check it out.


More Posts