One of the most obvious sources for funding to consider when purchasing a property is the owner. After all, who has a more vested interest in seeing that a sale occurs? The seller is the person who will answer either yes or no when you ask, “Are you open to financing arrangements?” or “Are you willing to take a promissory note?”
Always remember that the seller has the most invested in making sure the deal happens.
Depending on how motivated the seller is, he or she may have a very attentive ear when you offer to pay the asking price—in return for working cooperatively with you to make the sale happen.
One of the key words to consider here is “motivated.” Motivated sellers are those who don’t just want but need to sell the property and may not have the time or patience to sell it the “traditional” way—that is, listing the property for sale, waiting for a qualified buyer, negotiating price, then finally selling the property months after they listed it. Sellers may be motivated for any number of reasons, including divorce, foreclosure, job relocation, or even a death in the family. These sellers are not “down and out”; they are just in a position where they are anxious to move on.
When you use creative financing, you can make the situation a win-win for both buyer and seller.
Ways to Use the Seller as a Source of Financing
There are many ways you can utilize the seller as a source for financing. You can:
- Ask if the seller will hold a second mortgage, in lieu of a down payment. For example, obtain a 70 percent loan from a lending institution or through partners, and ask the seller to hold a second mortgage note for 30 percent.
- Ask if the seller would give you credits at closing for repairs. For example, negotiate a $5,000 credit at closing for roof repairs and new carpet allowance. The credit will appear on the closing statement, and you may even get money back at closing.
- Ask if the seller would consider a lease option or a land contract. (I’ll talk more about these techniques later.)
- Ask if the seller would trade services for a discount on the property. The key is: Don’t be shy!
You may feel uncomfortable asking someone to help you finance the sale of his own property, but this will get easier for you in time and when you know the facts. You will feel more confident in your offer and be able to explain the win-win scenario to the seller. These suggestions are only the beginning. You are limited only by your lack of creativity when problem solving.
Using these tools will also help you educate buyers when you become the seller!