Seller Financing Can Make Real Estate Investors Money

With so many homeowners desperate to sell their homes it has become a depressing site in the real estate market. While there are plenty of willing buyers in the market they are having trouble getting a mortgage. These are good buyers with good jobs and good credit but with the drying up of mortgages they are looking far and wide for a mortgage solution.

I had a chance to sit down with fellow real estate investor and the uncontested note buying queen, Donna Bauer, earlier this week. Donna shared some of her ways of making money in the current real estate market including using seller financing to help owners sell and buyers get a mortgage. I want to share what she taught me because this can be really powerful stuff.

Seller financing is any time someone who owns a home creates a mortgage note to sell finance a property for a buyer. There are two separate actions here the transfer of the deed, ownership in the property and creation of the note, the mortgage on the property. The current sell transfers the deed to the new owner and creates a note showing the owner owes them money for the property and must pay on a monthly basis. If they don't make the payments we all know what will happen.

For many investors you may think of seller financing as something that is only done on homes that are owned 100% outright. The fact is it is become more and more popular these days to do what is called a wrap around mortgage. This means the seller still has a mortgage they owe on that they make monthly payments to a bank for. But the seller then creates a new mortgage for the new buyer so they can purchase the property.

In the best of situations the new mortgage payments will be more than the existing mortgage payments. This means the seller has monthly cash flow. The seller will also receive a down payment on the property from buyer providing them cash upfront.

Donna has come up with a wonderfully smart way to marry the sellers and buyers together and create these notes in which partial amounts of the note are sold off of to other investors creating additionally cash flow and higher returns to the seller. Structuring these deals have infinite possibilities because of the flexibility of mortgage notes and the ability to sell all or some of the future payments to other investors.

While this can be somewhat complex it can also be profitable to real estate investors who are looking for a way to create a win-win-win situation in an otherwise bleak retail real estate market.

The secret to providing high returns on note payments is hidden in the principle of the time value of money. This means the more recent payments you receive the higher their intrinsic value creating either a greater return for you or your investor. You are able to charge a higher premium for these payments because of their value.