Last week we discussed a situation in which an investor partners with the seller on the project, which is one way to have the seller help “finance” the deal. In this blog, I’m going to explain what I call “Traditional” seller-financing because it’s the more common way to structure seller-financing deals.
Traditional seller-financing is any situation where the investor actually buys the house and takes ownership through a closing. Then, in some way, the seller is helping to finance that purchase. I break traditional seller-financing into 3 sub-categories. Note: These descriptions are how I speak about them. Other investors may use different terminology. I separate them because, structurally, they are different.
The important point to distinguish traditional seller-financing from the others is that the buyer will actually own the property! And, anytime a mortgage is staying in place, there will be due on sale clause risks.
- True Seller-Financing: This is a deal in which the seller owns the property outright with no mortgage. In this situation, the seller simply becomes a bank and “carries” a note and deed (mortgage) by exchanging his equity for the promissory note. The money doesn’t change hands as it’s all on paper. The seller earns some extra money on the interest. The investor gets a better rate than other lenders. All y
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