For those real estate investors who could not borrow from banks and are still looking to leverage their real estate investments, seller financing is a possible consideration. Quick review: in a seller financing transaction, the seller plays the role of the bank instead. The seller will finance your purchase of his or her home. Most negotiations will fall into four major factors:
- selling price,
- interest rate,
- the length of the financing,
- and the amount of the down payment.
As you negotiate in these types of deals, the factors get played around throughout. The seller may consider lowering the selling price, for instance, in exchange for a higher down payment. Or in another example, the seller may consider raising the interest rate if you are looking for a much longer term of financing. Each variables can often be changed depending on your needs and the sellers’ needs. As a result, one should carefully think about which factors are more important than others.
There are different types of buyers as well. You have to consider which buyer you are. Here are a few examples we can look it and see how these four factors play out.
A speculator is looking to capture appreciation in a housing market. Given the events in the last several years, in certain markets there are opportunities to speculate and capture appreciation. A speculator is looking to fully maximizing his or her profit in a short time frame.
So as a speculator, one would pay great attention to the selling price and the down payment amount. Monthly cash flow will play a second fiddle to this venture. The speculator will love to put a low down payment and yet still get a competitive sales price. He or she is willing to pay a higher interest rate or a short term balloon payment to achieve those …read more