Rentals are one of the most sought after assets to young investors, but oftentimes lead to headaches and stress. Owning real estate that makes money is lucrative and profitable, that is until a tenant decides to stop paying their rent. During the unprecedented times we find ourselves in today, tenants are failing to pay their rents at an increasing rate as moratoriums on evicts are on the rise. Landlords unable to evict non paying tenants find themselves in a bind, one that is intensified if the landlord has a mortgage on the property. Fortunately, this moratorium will not last forever, but tenants lack of payment just might. To avoid dumping more money into an “asset” that fails to generate income, landlords are selling their homes to investors “as is” with seller financing.
Seller financing allows the seller to turn their once cash flowing asset into an asset that once again makes money for them without the stress. Essentially, the owner is becoming the bank for the investor and if the investor fails to pay they have every right to take the house back, just as a bank would. Unlike banks landlords are selling to investors who have intent to repair the home to a profitable condition. If for some reason the investor failed to pay, the landlord could take back a property in better condition than they sold it at. Seller financing relieves owners of all responsibilites associated with owning property, no longer will they receive calls from a frustrated tenant about a problem with the house. Seller financing sounds like a great solution for tired landlords but what about those that don’t want to hold a loan for such a long time? In most cases, investors don’t hold seller financing for over five years and take a loan from the seller known as a balloon mortgage.
Balloon mortgages are mortgages from the seller that act as a typical mortgage from a bank, but instead of taking years to pay off they only take a set time agreed upon by the buyer and seller. In a typical balloon mortgage financing situation, a seller will ask for 5 years to satisfy the mortgage. The payments are based on a 30 year amortization schedule so the investor can obtain the lowest monthly payment as they will be assuming the responsibilities of the home such as taxes, insurance, and any repairs. Fortunately for sellers the first five years of a 30 year amortization schedule are heavily loaded with interest, so most of the buyer’s payment will be interest and at the end of the five year period they will likely owe very close to the original asking price. At the end of a balloon mortgage seller financing situation, sellers is most cases find themselves walking away with well over asking price due to interest.
If seller financing is such a great option for sellers, why is not as widespread? The minimal interest rates of today make qualifying for a bank mortgage an easy endeavor so many investors turn to banks for their funding. At helpful homes we are hoping to make the seller financing situation more widespread so banks aren’t the only ones that may profit from interest. As investors look to hold on to their cash to maximize the amount of projects they can take down, they oftentimes forget about the win win situation available to them and prospective sellers. Financing held by sellers allow tired landlords to profit from a house that has been nothing but a headache and it allows investors to invest in multiple projects at once.