Selling A House With Owner Financing
When you sell a house in Greater New Orleans, the buyer will often get a loan from a bank. However, there is an easier way for the buyer to finance the purchase. The seller can sell with owner financing and act as the lender. In Louisiana, the seller will get a promissory note and a mortgage. The note is the buyer’s promise to pay what they owe. The mortgage is the security to back up that note.
Advantages of Selling a House With Owner Financing
Seller financing can be good for a home buyer. It can also be good for a seller. Some of the advantages include:
Selling For Top Dollar
When you’re able take a monthly payment until paid in full, you create a larger supply of potential buyers than you would with cash only buyers. Since there are more buyers, you can get a higher price than you normally would from people who buy houses for cash at 70 cents on the dollar.
Faster Closing
When the buyer gets a loan from a bank, the process can take a long time. The bank will require certain inspections. They will want an appraisal. If there are tenants, they will want to review the rent rolls. This can easily take as much as 2 months. When a seller provides the financing, they already know the condition of the property. They know how much it is worth. They know whether there are bad tenants who may not be paying rent. With these hurdles out of the way, you can sell your house fast.
Income
Not only can you receive cash at closing, you can continue to receive regular monthly payments. For retired landlords that are used to receiving monthly rent, these payments provide passive monthly income without the problems of tenants and maintenance. If you do not need cash right away, the payments and remaining loan balance may provide better returns than a certificate of deposit or other savings account. It can also be less risky than having your investments exposed to the volatility on Wall Street.
Deferred Taxes
If the house has increased in value since you bought it, you may owe taxes on the capital gain. If you have used depreciation to lower your income tax, you will have to recapture that depreciation. Any gain up to the amount of depreciation will be taxed at a higher rate than the normal capital gains rate.
These taxes can be spread out over the course of several years as you receive payments from the buyer. The best thing to do is your talk with your own CPA or a CPA that specializes in real estate about your specific situation.
Disadvantages of Selling a House With Owner Financing
Foreclosure
The biggest disadvantage of selling a house with owner financing is that you have go through the foreclosure process on the property if the buyer doesn’t pay. This process takes time and can involve hassle and expense. If you use a bond for deed, the process to get the house back will be much quicker.
Prepayment
If you are attempting to defer your capital gain taxes, another potential issue would be if the buyer paid off the loan unexpectedly. This could happen if they were to sell the house or refinance. One way to avoid that is to include a prepayment penalty in the loan contract.
Need For Cash
One concern for the seller is a scenario where they find that they unexpectedly have a need for cash fast. In this event, they would have the option to sell the note to someone else. However, they will likely have to sell the note for much less than its value.
Cash vs Terms Offer
At Fairview Home Buyers, we understand that each person and situation is unique. We are local home buyer and specialize in buying houses fast. We will give you a fast cash offer to buy your property. We also have the ability to purchase your home on terms if it provides a win-win scenario. Either way, we have the knowledge, experience, and access to resources to guide you through selling your house fast to help you make an informed decision on which option is best for you.