If you’re thinking about selling your house and need to know what your different options are, perhaps you’d care to learn about something called “seller financing” (also known as “owner financing”). Owner financing is a lesser-known but very effective way to sell your house. Seeing this you’re probably curious, is owner financing a good idea for the seller in Houston? That’s a great question and we’ll answer it in this blog post…
Owner Financing Basics
In a typical home-selling transaction, the buyer (who doesn’t have ALL of the money for a house) goes to a lender (such as a bank) for a loan, or a mortgage. The buyer will be required to pay a down payment, in most cases, and then make regular monthly mortgage payments until the original loaned amount is paid in it’s entirety.
This is what you’ll commonly see when it comes to buying and selling.
But there’s a different way to sell your house that you might not be aware of, and it involves owner financing.
With the owner financing method, everything is the same, with one important exception – the seller of the house performs the role of the bank or the lender. That is to say, the buyer pays a down payment to the seller and then makes regular payments (just like mortgage payments) to the seller until the house is paid in full. The ownership of the house transfers to the buyer right at closing.
And just like with bank financing, the seller retains a lien on the house as collateral. Of course, the implication here is that seller can foreclose if the buyer is not able to make the payments as agreed.
Is Owner Financing A Good Idea For The Seller In Houston
Many sellers find owner financing to be a great fit for the following reasons:
- They have a greater pool of potential buyers to sell to (including those who might not qualify for traditional bank financing)
- They are often able to sell their house for more, with less repairs needed
- They get consistent monthly cash flow from financing payments
- They still own the house and are protected, should the seller go into default with the payments
- There is no property management or on-going maintenance
Lets stop and consider that last point for just a moment from the standpoint of a landlord. The entire discussion of dealing with tenants, screening them and finding reliable renters, that all goes away. Also, those leaky pipes, AC units, water heaters and roofs, those are no longer your property. Therefore you are no longer responsible for keeping them in good condition for a renter. All of that will transfer to your buyer. And as property taxes rise along with property values here in Houston, rental margins get squeezed. For landlords that are feeling this, selling that rental property at a higher price point with owner financing might be a far better alternative than staying in a cash negative investment.
Why else is owner financing a good idea for the seller in Houston? What about those sellers that are not landlords?
Even if the seller is not a landlord, generally speaking, offering great terms to a buyer means that the seller is able to command a higher selling price. It is similar to a car-dealership experience, when you are offered low or zero-percent financing, or a cash discount. You can negotiate for price, or you can negotiate for terms. You don’t get both.
As the seller in this scenario, you may also get to spread out the tax implications over several years, which may or may not offer benefits (please consult your tax professional to find out if that works in your case).
What’s not to love? You get continuous cash flow and protection, and you still have the ability to sell your house.
Whether this is a primary residence that you’re looking to sell, you’re a landlord who is ready to start selling rental property, or if you simply prefer to have payments spread out over a longer period, creating an income stream, then owner financing might be the alternative you’ve been searching for.
If you’re serious about selling your house and want to explore all of your options, take a closer look at owner financing.
Owner Financing Is Not For Everyone
There is no one-size-fits-all solution, as every seller has a unique set of circumstances. Just like 100% all-cash offers do not make sense for all sellers, the same can be said for seller financing. Some people need cash, and they need it right away. They may have health issues, legal issues, or they might have any number of other needs that require cash right now, not later. Others need to reinvest the cash into other investments. Some may have enough equity to pay cash for a smaller home, particularly those that are downsizing.
But for the most part, people are paying off underlying debt (mortgages) and just looking to retain as much equity as they can from the sale. These are the sellers that will be able to benefit the most, simply due to the fact that they can realize a higher sale price. So ____ is owner financing a good idea for the seller
If you want to talk to one of our team about how owner financing might work for you, and what some of your other options are, call our team right now at 281-947-5545 or click here to fill out the form and we’ll get back to you ASAP