Here are 5 good reasons.
I’m asked these questions all the time. Once people understand the concept, they often wonder why a seller would offer financing. Here are some reasons why.
- Credit availability – This is the biggest reason. In many cities in the Midwest and South East clean homes in good neighborhoods can be purchased for $60,000 or less. Even though the buyers may have good credit ratings many banks won’t lend to them. If a buyer makes a 10% down payment the loan will be $54,000 and that’s well below many banks lending limits. Minimum loan amount limitations of $100,000 are common in many banks. It’s simply not efficient for them to make smaller loans. So, the seller needs to provide the buyer financing if she wants to sell her property.
- Passive Interest Income – Many sellers like passive income. Passive income is taxed at lower rates than ordinary income and provides long term financial security. If they need the cash later they can sell the note. However, in the meantime, it’s a great source of constant cashflow.
- They still have the house as collateral if the borrower defaults – No one wants a borrower to default. But if they do the seller can take back the home and resell it. So, his investment is relatively safe.
- They can rent it out if the borrower defaults – If the borrower defaults they can rent the house often making more money than they did if they sold it with seller financing.
- Avoid Realtors fees – If the seller offers financing they can often sell a home on Craigslist, Facebook, or simply by putting a for sale sign on the front lawn. Its efficient and avoids lots of other costs.
If you’re interested in creating consistent passive income investing in Mortgage Notes please call us. We can be reached at 510-918-9001. Ask for Richard Thornton