The landscape of today’s economy has led property owners and prospective buyers to explore alternative avenues like seller financing and assumable debt. Sellers with limited to no debt on assets can make a 1st position loan, which is much less risky than 2nd position. A seller financing strategy provides a lifeline for buyers navigating the challenges of elevated interest rates, strict underwriting standards, third-party reporting, and prepayment penalties. It also offers distinct advantages for sellers seeking to close deals swiftly and competitively.
Here are 4 main reasons property owners are more seriously considering seller financing:
1. Higher Pricing
With the seller of a property acting as a lender, owners can offer buyers more favorable terms, such as lower interest rates or longer payment periods. These factors can lead to achieving a higher sales price as it is more cost-effective for buyers.
2. Cost-Effectiveness for Buyers
On top of flexible and more favorable loan terms, buyers save on loan origination fees and closing costs. Also, traditional lenders typically require a property appraisal, which is not required, potentially saving the buyer time and money.
3. Shielding Capital Gains
When a property sells through traditional financing, the seller must pay capital gains tax on the lump sum received. Through seller financing, an owner would defer these capital gains in the future, spreading out the gain over several years.
4. Faster Closing & Flexibility
The traditional mortgage process can be time-consuming and requires multiple third parties. Seller financing sales require far less paperwork and avoid coordination without the various parties involved.