Have you ever found yourself out of financing options and wondering where the capital for your next deal will come from? Do you feel as if you have exhausted all of your options? Don’t worry, you aren’t alone. Far too many people simply don’t realize the sheer volume of financing options made available to them at any given point in time. If you find yourself out of options, there is a good chance you haven’t looked everywhere. Don’t ignore the one seller financing real estate option that could save your next deal: “subject to.”
Few things are more important to today’s real estate investors than constant, reliable access to capital. Outside of the actual knowledge required to run a competent real estate business and the relationships you make along the way, nothing is more valuable than the ability to finance a deal in a moment’s notice. After all, what is financing if not for a tool to facilitate each and every deal?
It’s worth noting, however, that in order to retain the ability to finance a deal whenever the situation calls for it, you must have options. If for nothing else, real estate is a numbers game; the more financing options you have at your disposal, the more likely you are to receive the leverage you require. I maintain that those investors with the easiest access to capital are also those who will have a significant advantage over the competition, but I digress. Not all financing options are created equal, nor are they from the most obvious originators. However, those that not only know how to identify a good opportunity, but also take advantage of it, will find that the financial scale tips in their favor.
Whether you realize it or not, there are multiple financing options made available to savvy investors; you just need to know where they are and how to find them. Instead of relegating your search efforts to traditional financing, think outside of the box. There are a lot more options out there than institutional lenders and private money lenders. In fact, there is one financing option I don’t want investors to neglect: seller financing real estate.
As it’s name suggests, seller financing real estate will witness the seller play the role of the lender. In its simplest form, seller financing is a real estate agreement in which the financing provided to the buyer is offered by the seller. More often than not, seller financing real estate becomes an option when the buyer does not have the necessary credit to purchase a respective property. Provided the seller is in a position to offer terms both sides can agree upon, there is no reason seller financing real estate options can’t benefit everyone involved.
Provided the situation calls for it, seller financing can offer creative financing options for buyers, sellers, or even as a deal facilitator for other parties. There is no doubt about it: seller financing real estate has its place in the housing sector, and those that compliment their existing financing options with it will find that buying a home is rarely ever out of reach.
”Subject To”:Your Best Seller Financing Real Estate Option
Before I get ahead of myself, it’s worth noting that the following seller financing option falls under different naming conventions in different states. What someone may know in California as a “subject to” could be known as something different just one state over. That said, I highly recommend checking with a trusted legal advisor, accountant, and title company before you set out to acquire seller financing real estate options.
The most well known, seller financing real estate option made available to buyers is known colloquially as the “subject to,” meaning the terms of the loan are subject to the seller’s existing mortgage. Otherwise known as “getting the deed,” “subject to seller” financing real estate options are probably the most well known, but far from general knowledge. And since so few people actually know the ins and outs of a “subject to,” it’s in your best interest to familiarize yourself with them. At the very least, it’ll give you one more option to choose from when the time comes to finance a property.
Typically, the seller will offer the buyer a Grant or Quitclaim Deed in exchange for some type of consideration (i.e. money, a note, or other assets). In exchange, the buyer is expected to put down “earnest money,” which isn’t usually a large sum of money; it’s just a gesture to show your interest. In exchange, the borrower essentially takes over the payments of the existing mortgage. What’s more, the seller will maintain the loan liability until all obligations have been met. The original terms of the note will stay the same, including the name on the loan it was originated for.
I want to make it abundantly clear; you are not assuming the loan. The terms you decide on are strictly between you and the seller, so long as they comply with the terms that were set forth in the original loan.
In the event you decide to pursue a “subject to” seller financing real estate option, make sure the title is free and clear of any discrepancies. Hire a title officer to be certain that the home in question is void of liens against the property and that could cause problems down the road. Only once you are certain that there is nothing that could stall the sales process, or even call into question the real owner of the property, can I recommend moving forward with a “subject to.”
Seller financing real estate options aren’t as well known as traditional financing options, but they are nonetheless an option. In fact, there are times when “subject to” financing options just make more sense for everyone involved. So long as everyone agrees to the terms, you may find that seller financing is the best way to go to acquire your next deal. Of course, mind due diligence and make certain that it’s your best option, but don’t simply ignore it; you could find it to be extremely beneficial.