One of our Synrgy Home Selling Programs is a Seller Carryback. A seller carryback is simply owner provided financing, where the seller of a piece of real estate acts as the bank. This strategy, carrying back a note, can be a useful real estate tool for both the seller and buyer. Seller carrybacks are becoming increasingly popular in today’s economy as getting traditional home loans from banks becomes more challenging. The video below explains more…
How It Works
When a homeowner wants to sell his house but has trouble getting enough qualified buyers, the seller can carry back the note on his own house.
- The buyer and the seller sign a promissory note. This note says the buyer promises to pay a specific amount of money with a specific interest rate at a specific time. Sounds like a mortgage. The only difference is that instead of making payments to a bank, the buyer makes monthly payments to the seller.
- The seller moves out, transfers title, and collects monthly payments from the buyer. The seller acts like the bank, holding the note and collecting payments. If at any time the buyer stops making monthly payments, the seller has the opportunity to legally foreclose and take the property back. He can then try to sell the property in a traditional sale or carry back a note again.
Seller Carryback Benefits
Now there are five amazing reasons why a seller that owns a property free and clear would consider carrying back the note.
- Your money is secure. When you carry back a note, your note is secured by a first position lien deed of trust or mortgage on the real estate you are selling. So, in the event the buyer stops paying, you can simply foreclose on the property and take it back.
- No more dealing with tenants or toilets. When you carry back a note, you are no longer the titleholder of the property. Your buyer is. So they are responsible for any and all repairs, dealing with tenants, collecting rents, and making monthly payments to you.
- You get the price you want. Typically, the reason you would carry back a note is that you were getting the price you want for the property instead of selling it at a big discount. In exchange, you work with your buyer on giving them good terms, and everyone comes out a winner.
- It is a simple, fast way to sell a property. Real estate investors are easy to deal with. No repairs are needed. All the paperwork will be handled by the investor or the closing agent. No commissions or closing costs are typically associated with this type of sale. And since there are no banks involved, the approval process is as easy as a few conversations between you and the buyer.
- You can sell your note to other investors. There are actually a whole bunch of investors with deep pockets looking to buy performing notes. So if you ever had to sell your note to get quick cash in your pocket, there are a lot of people willing to cash you out.
Now, there is a downside to seller financing that was mentioned earlier. If the buyer stops making their mortgage payments to you, you’ll have to foreclose on the property to get your collateral back. This process is time-consuming and can be costly. But we have an amazing track record, have never been foreclosed on, and would be willing to sign a deed in lieu of foreclosure in the event the mortgage payments go into severe default.
Seller Financing in Action
Now that you know the benefits and downsides of doing a seller carryback, let me give you a simple example of a property sold through a carryback. Let’s say Sarah wants to sell her property that was built in the 1980s that she has owned for 20 years. She paid off the property and now owns it free and clear. And let’s say the house is worth $100,000, but it needs at least 20,000 in repairs. She wants to sell it for $90,000, and all the offers she has received so far are way too low, and she’s getting frustrated. That’s when clever investor Bob comes and asked Sarah if she would be interested in getting creative and carrying back the note. Sarah says she’s interested, and Bob asks Sarah what her goals were. First, Sarah wants to help out her parents and needs about 5,000 for that. Plus, she really wants to buy a new car and estimated she needed 10,000 for that.
So, after listening to Sarah, Bob offers Sarah $90,000 for her property paid as follows, $15,000 as a down payment, the rest to be paid in equal monthly payments until paid off. Sarah loves the idea of getting the cash she needs upfront plus mailbox money every month. So she happily accepts Bob’s offer, and Bob and the closing agent create all the necessary paperwork to create the note and secure Sarah’s loan to Bob.
This is a simple example of a seller carryback. And the great thing about this creative financing strategy is there are many ways to create a win-win scenario that makes sense to both the buyer and the seller.
If you would like to explore this option or any other selling options with us here at Synrgy Home Offer, whether that be a straight cash offer or even listing your home the traditional way, feel free to give us a call or text. We’re happy to answer any questions!