Once upon a time, people owned real estate. They lived there, farmed it, and paid it off if they had a mortgage. When they wanted to sell the property, they often sold it using a contract that they negotiated directly with the buyer. The buyer would bring in down-payment money and then pay the seller over time.
There was no bank qualifying.
The government did not dictate terms of qualifying and condition of the property.
There was no real estate agent.
There was no appraiser.
There was no home inspector.
The county recorder recorded the transaction.
The cost of the transaction was minimal.
People did business with people.
Over the year, the trappings of the real estate industry became ingrained into the American way of life. More and more government intervention over who can borrow and under what conditions. Banks drove most home purchases through lending practices. The 30-year mortgage became the standard way of life. Appraisers drive prices. Real estate agents block sellers and buyers from talking with each other.
Transaction fees climb higher and higher. Sellers pay 10% or more to sell a house- 6% to real estate agents, 3% towards mandated FHA buyer selling costs, 1% to title and closing fees, hundreds for home warranties, and the list goes on...
Fast Forward to 2009
Bank credit is tighter. Fewer people can qualify due to lost jobs and lower credit scores.
During the years of loose credit and easy qualifying, the art of one person selling a property to another was lost.Only a few "old-timer" real estate investors kept the skill alive- contract sales from one person to the next. Peter Fortunato and Jack Miller are two of the best and they never stopped teaching this art. Even as "no money down", "short sales", and "REO's" come and go as fads, they taught seller financing decade after decade. (By the way, the funny thing is, they charge hundreds of dollars, not thousands or tens of thousands like the infomercial "gurus.")
Where Did All the Bank Loans Go?
The banks are tightening credit standards. At the same time, people are losing jobs and losing points on their credit scores. The government backs almost 98% of all residential housing loans, imposing rules and regulations that add cost and time to transactions. Appraisers are afraid of overstating prices and over-compensate by comparing fully renovated homes to uninhabitable bank-owned properties when establishing market value. They completely disregard valid arms-length contracts between willing buyers and sellers.
So if it's so hard to get an owner-financed loan, what chance does an investor have? Oh, no problem. Just own the property for at least a year, put down 25% cash on the property, have great credit and W-2 wages (as an employee, it can't be your own company) and the loan is all yours!
Contract Sales: Coming Soon to a House Near You
Enter the revival of the contract sale. People want to sell properties. Their buyers can't get a bank loan. Solution? Buyers put down 10% or more and sellers carry the contract. They record the transaction with the county. They decide the market price, and the interest rate, and other terms and conditions of the transaction.
Think you need to drop your asking price to sell your home? Think again. Get flexible on terms. Carry a contract. Name your asking price. Seller financing financing is worth a LOT to buyers who can't get a bank loan. And there are MILLIONS of people who want to own their own home, but can't get a home loan.
Learning How to Do a Seller-Financed Transaction
Want to learn how to do seller contracts? Find an investor who's been around for a while. Go to an investor club meeting and ask. Looking for a meeting? Shaw Watkins has picked up these skills and is passing them on to a new generation of investors. Click on his name and learn more on his web site.
Tell me about your seller-financed deals.