Owner Financing | 4 Advantages for the Seller
Here are the Owner Financing Advantages for the seller.
Sellers want to obtain the most money for their property as possible, and a fast closing with little hassle. Many Sellers also want to pay as little taxes as possible on the gains incurred. In many cases, the seller can have most of his desires satisfied by owner financing sale rather than a traditional cash sale.
4 Advantages for the Seller:
1. Highest Price. More often a seller can insist on and receive a higher price when offering flexible owner-finance terms. In many cases, the seller can receive more than the fair market value of the property by offering these “soft” terms. People are often willing to pay a premium for easy-qualifying financing.
2. Cash. Nearly every seller says they want all cash, but few need it. What the typical seller wants is the most net cash from the deal. Often, the seller has to pay closing costs, title insurance, broker fees, and the balance of the existing financing.
In addition, there may be capital gains tax due to the IRS. In many cases, owner financing the transaction (particularly a “wraparound”) will net the seller more future yield than any source from which the cash proceeds were reinvested.
3. Fast Closing. Typically nothing holds up a sale more than qualifying for financing. It can take months for a buyer to qualify and close a new loan to purchase property. Since most standard real estate contracts contain a financing contingency, a seller may end up back at square one if their buyer does not qualify.
Furthermore, if the house is not particularly nice or unique, it may take some time to even find an interested buyer. Since the seller is competing with all of the other houses for sale.
There are very few “assumable” loans and few sellers are offering “soft terms.” Thus, an owner financing and hard money lending makes a house unique. Furthermore, an owner financing and hard money lending transaction can be consummated in a matter of days, since there is no appraisal, underwriting, or other preconditions of closing involved.
4. Tax Savings. On an installment sale, the seller only pays gains to the extent they receive payments each year. This can be particularly advantageous if you have owned the property for several years.
As you can see, the installment sale provides many advantages to the seller of real property.
by: Robert A. Ballinger, Attorney at Law
Read Part 1 to Owner Financing here: Owner Financing | A More Viable Investment Strategy
Read Part 3 to Owner Financing here: Owner Financing | 4 Advantages for the Buyer