By Omar Johnson
The author has permitted the reprinting and redistribution of this article.
If you are new and are just starting out in the quick turn real estate investing game there are two concepts you will inevitably come across and have questions about. These concepts are selling financing and subject to. Here is a quick review of both of these real estate investing strategies.
What is seller financing
When you buy real estate using seller financing this simply means that the seller carries financing for some part of the purchase. It could be for all of the purchase price or for part of it, and it could be a first or second mortgage. The portion of the purchase that is not financed by the seller could be paid in cash, or it could be paid by taking over payments on the existing financing, which is called acquiring the property subject to the existing financing, or subject to for short.
What is subject to
Buying a property subject to the existing financing simply means that you take over the payments of an existing loan on the property. This is different than assuming the loan. Assuming a loan means that you would have to go qualify for financing with the seller’s lender and guarantee the loan personally taking on recourse debt.
When taking over payments subject to the existing financing the loan stays in the seller’s name until it is paid off and as far as the lender is concerned the seller is responsible for the payments. Although you will have agreed with the seller to make the loan payments and you should fulfill your responsibility, the type of debt that you will be dealing with is non-recourse debt.
Profit centers
When dealing with owner finance and subject to deals there are three ways to profit on the front end, monthly, and on the back end. Front end profit is the difference between the down payment you promise the seller and the down payment you collect from the buyer. Monthly profit is the difference between the payments you promise the seller and the payments you collect from the buyer. Back end profit is the difference between the purchase price you promise the seller and the purchase price you agree to with your buyer, including any discount you eventually negotiate with the seller.
Advantages of seller financing and subject to
There are a number of reasons why seller financing might be desirable for you as the investor as well as for your sellers and buyers
Advantages to the investor
-No bank qualifying is involved and hence no credit bureau activity, which means that your personal credit is protected.
-You can often negotiate highly favorable down payments, rates, and terms when working with motivated sellers.
-Being able to offer no qualify financing means you often will be dealing with motivated buyers, those who can’t buy a house conventionally, as well as motivated sellers. So you get the best of both worlds.
-Closing costs are minimal any time you’re not dealing with a conventional lender; until your end buyer cashes you out you don’t even need to purchase title insurance.
Advantages to the seller
-Debt relief is the primary advantage of selling on a subject to basis, right up there with avoiding foreclosure.
-The seller’s credit will be improved as you continue making payments and eventually pay off their loan.
-In the case of seller financing the seller will receive a steady income stream from the property. This can be desirable to many different people for many different reasons.
-The main advantage to the buyer is no qualify Financing getting to move into and perhaps gain ownership of a property without qualifying for a loan.
Omar Johnson is a successful real estate investor and author of the home study course Renegade Stealth Marketing For The Savvy Real Estate Entrepreneur For more info visit httpwww.renegadestealthmarketing.com
If you would like to take advantage of the market and learn how to invest in real estate and you are local to the Dallas Fort Worth area, I know a really great teacher and mentor here in Arlington Texas. Please take a look at his web site: DennisJHenson.com, Dennis has a great Mentoring and training program, I know because I am one of his former students. I learned a lot from his one on one teaching technique. – Michael Harman 817-457-7572 mchfun.business@gmail.com
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