Are you looking to grow your real estate portfolio? It’s one of the best investment classes in the world, and it’s a secret that most wealthy people don’t want you to know. After you obtain one or two rental properties, you start to realize how powerful real estate is.
The more real estate deals that you do, however, the harder it can be to obtain traditional financing. After a while, you need to start looking for alternative funding strategies, such as seller financing real estate.
If you can bypass the banks and traditional lenders, you can grow your portfolio, and your wealth, much faster.
Wondering what a seller-financed mortgage is? Want to know if seller financing homes is the right strategy to try next? Keep reading to learn all about seller financing as a real estate strategy.
Why Alternative Funding Strategies are Necessary
One of the main ways that new investors obtain new rental properties is with a conventional mortgage. However, terms on mortgages for rental properties are a bit different than those on a personal residence.
When buying a personal residence, interest rates are lower, and down payments are flexible, often as low as 3.5% depending on the mortgage type. But when it comes to mortgages for rental properties, terms are more strict.
You’ll need to put at least 20% down, and interest rates will be much higher. So getting multiple properties can take much longer for the average wage earner.
The biggest downfall to this approach is that banks will eventually stop providing traditional mortgages after a certain amount, leading you to search for other investment financing options. That’s where the seller-financed strategy comes in handy.
What are Seller Financing Real Estate Investments?
So what is seller financing? It’s a real estate hack that allows the home seller to become the bank. There’s no middle man to deal with.
Instead of getting a loan from a third-party lender, you make mortgage payments to the seller. You’ll still own the house after transferring the title, and you can negotiate terms in the seller financing contract.
This means you and the seller can set the interest rate, the loan length, and so forth. And, if you find a willing seller, you can own the property a day or two, compared with the 30 or more days it takes to work with a traditional lender.
The seller wins, because they get to earn interest on the sale price of their home. And you win because you get another property without the hassle of big lenders and complex underwriting.
It can be hard to find sellers willing to finance the deal themselves, as most sellers need the cash upfront in order to purchase their next home. You often need to find people who inherit properties, who don’t necessarily need the cash upfront and would rather earn interest.
Is Seller Financing Right for You?
So should you consider seller financing real estate investments? They can be a powerful way to grow your portfolio, especially if you don’t qualify for a traditional mortgage.
However, they can be tough to find and will require an investment of time on your part. If you have the time, however, it’s a strategy worth pursuing.
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