8 Reasons Seller Financing Benefits Both Sides of the Deal

Sellers need buyers…

Buyers need sellers.

What they don’t need is a middle man.

[tweet “Sellers need buyers; buyers need sellers. Neither needs a middle man!”]

The secret to cutting out the middle man is to find buyers for properties… and only then find the properties for those buyers.

Here’s a podcast episodecreated from my appearance in Chicago.Listen to the part where I share with the audience about the importance of finding buyers before finding properties. (Most people have the backwards and wonder why they aren’t closing more deals.)

This is episode 11, and it’s the first of a three-part series. Give it a listen if you haven’t already…


You should listen to the second and third parts, too. (Hey, it’s good stuff and you’ll learn a lot.)

When investing in properties, it’s always best to work directly with sellers and to negotiate seller financing whenever and wherever possible.

There are reasons.

In fact, there are 8 reasons seller financing makes a whole lot of sense for both seller and buyer…

One the seller side:

1. Saves seller in capital gains tax and lets him keep more of his hard-earned cash.

You can’t get around paying capital gains if you sell your property outright and don’t work terms with the buyer or don’t buy another property fast enough. It’s the way the tax system works. If you work with a buyer, however, you can structure payments out over time. It’s better to receive a stream of income than a lump sum (a.k.a., pile of cash). Unless you are selling only to turn around and purchase another property to live in, you can structure the deal to be more beneficial to you and your wallet.

BTW, I’m not giving you tax or legal advice. It’s best that you speak with a tax expert and/or attorney on these matters!

Now that we’ve gotten that out of the way, let’s talk about another money-saving strategy. If the seller will carry all or part of the deal, he can get around paying pesky fees and closing costs that come with traditional financing (through banks). He doesn’t have to pay off the existing mortgage if the deal is structured correctly. Plus, he can ask for a higher-dollar amount if he works terms with the buyer. For example, he can get money now and money later. But he has to be very flexible in his terms. (This is something that you as the real estate investor and buyer of properties will learn to negotiate.)

Flexible terms are also called “soft” terms by some in the industry. It simply means the terms benefit both sides. If you are acting as the middle man (a.k.a., the wholesaler in the transaction), seller financing can work out great for your end buyer who doesn’t have great credit or a big chunk of change for a down payment.

[tweet “Seller financing offers flexible terms… also known as “soft” terms.”]

If you are the end buyer and are investing to buy and rent the property out, you want the seller to finance the deal and the terms to be flexible or you’ll have to come up with a whole lotta money typically. As a real estate investor you have lots of options.

For example, you could do a lease purchase option or a subject-to deal if the seller doesn’t need a bunch of cash to go buy another property. If he is selling for other reasons and can carry the financing, it’s a win-win for both sides. He’ll get an amount up front and a check for a long time to come. How you structure the deal is between you and the seller.

There are lots of ways to work with sellers directly and buy properties with little or no money of your own.Listen to Cash Flow Diary podcast episode 137 to learn a few special strategies.


2. Seller gets the benefit of faster transaction.

Using traditional lender financing can take months. That’s because the buyer has to be qualified and jump through hoops just to be allowed by the bank to purchase the seller’s property.

With seller financing the deal can close in 7 to 10 days, which helps the seller move on more quickly. That can be a big benefit especially to those in the military (and were just informed they were being deployed) and high-level executives (who are being transferred to another state and need to sell quickly).

[tweet “With seller financing a deal can close in less than 10 days!”]

In a seller-financed deal, there is no mandatory appraisal or mandatory underwriting that the buyer or seller has to mess with and no other time-sucking nonsense to deal with. The transaction is between two parties. The seller saves himself possibly thousands of dollars in broker’s fees or agent’s fees, too.

Here’s a quick video about owner (i.e., seller) financing you should watch that will help you understand this part…
Another thing that saves time in the transaction is the condition of the property. In a traditional real estate sale involving a bank and an agent or broker, the property has to be up to snuff. It has to look great to attract buyers. That means money-sucking upgrades and repairs.

In a seller-finance transaction, the condition of the house doesn’t really matter. In fact, the buyer may approach the property owner if he sees that the property is in poor condition. That is an opportunity.

[tweet “An ugly property looks like beautiful opportunity for the right real estate investor!”]

The seller may not have the money to fix up his property, but if he offers seller financing and can work creatively with the buyer, well, the buyer can fix up the property himself, thereby saving the time, money and effort the seller would have had to put in to get the property ready for market on his own.

3. Seller can transfer the note, which is less problematic than transferring ownership of actual physical property.

That means whoever inherits the note is in a better position than having to deal with liquidating a property he doesn’t want to own or manage. After all, he may not feel the same way about a piece of property as the dearly departed did. You’ll find that a lot of opportunity exists when you start chatting with people who inherited houses and even apartment buildings.

[tweet “Those who inherit real estate often don’t want to keep it, which is a golden opportunity in REI.”]

A lot of times those who inherit a property don’t want the property. The reasons are many and varied, but typically they don’t understand the opportunity, don’t want to learn about it, view it as a hassle and are willing to work very reasonable terms with buyers just to get the property out of their life. Plus, they typically want a fat chunk of change. That is a common motivating factor. They want a pile of cash from the property to buy a new car, do upgrades to their own home or purchase some sort of doodad.

But that all applies to real property. What I’m talking about here is the transfer of a note. Here’s a quick video you’ll want to watch that explains notes and the transfer thereof…
As defined by the Lectric Law Library, a promissory note is “a written document in which a borrower agrees (promises) to pay back money to a lender according to specified terms.” This note can be transferred fairly easily between parties. So, if someone inherits a note vs. real property, he can transfer it to the buyer pretty easily. There is no pesky house to mess with and it’s a win-win for both seller and buyer. The seller walks away with cash; the buyer walks away with a note that will appreciate over time.

We’re doing an interview with an expert who deals in notes upcoming on a future episode of the Cash Flow Diary podcast. For now, if you want a quick overview about buying and selling notes that is nicely written and easy to understand, go here…


4. The seller can have his retirement secured by an asset (the physical real property) vs. having his money tied up in paper assets.

For example, if the seller is moving toward retirement, which could be the reason he is selling the property, he can realize a good chunk of change that comes from getting the equity out of his property at the time of sale.

Or he can have the benefit of a structured deal where over time he receives money from the buyer every month, every quarter or however the payments are structured. This actually creates more stability. It is a stream of cash vs. a pile of cash. (The pile, BTW, is taxed heavily. The stream can benefit from tax deferrals if it goes into a retirement account.)

[tweet “Which is better… streams of cash or piles of cash?”]

Explaining this takes a little know-how on the part of the buyer… you as the real estate investor wanting to purchase the seller’s property. In such cases, you would explain how the seller can carry the note and act as the bank, which gets him checks in the mail month after month for a really long time. Unless the seller needs to turn around and immediately buy another property as his primary residence, he doesn’t need a big pile of cash up front.

NOTE: The buyer should consider securing his retirement through buying more properties vs. tying his money up in paper assets, too. That’s what you typically find inside retirement accounts that are managed by other people or companies. Ideally, a self-directed IRA is the way to go, so you can choose what your retirement money is invested in… and not some third party (company or broker).

I did a really cool live event with U Direct IRA’s Kaaren Hall last year on this topic. Give it a listen. You’ll learn a few new things.


Now for the buyer-side benefits:

5. Buyer needs less money (actual cash) to buy the property, which means he can buy more properties faster and help more sellers over a shorter period of time.

As the buyer (a.k.a., real estate investor), you are looking for opportunities. For example, let’s say you’re talking to someone at your local Starbucks and you learn that the person has property he is considering selling. You ask him a few questions and get him to open up. You learn that he is open to seller financing. Yay!

Now you can negotiate terms that require less cash up front. In fact, maybe there’s no cash out of pocket up front. Maybe you’re the wholesaler, so there is absolutely no money you’re putting down to gain control of the property while taking it to an end buyer. At closing you get money and the seller gets money, but you can structure the deal to benefit everyone.

[tweet “No-money-down deals are NOT an urban myth! They happen all the time.”]

Deals can be structured in a variety of ways. Sometimes the seller really doesn’t need the pile of cash up front. He’d rather partner with the buyer in different ways… or acting as the bank he will receive more over time from the buyer than he ever would if he were to take a fat chunk of change up front or go through traditional real estate sales channels.

There are so many ways of doing the deal that once you learn them you’re gonna get mighty excited just thinking about it. (Or maybe that’s just me.)

6. Buyer can purchase more properties because he doesn’t have to wait for the old house to sell before finding the new house to purchase.

Plus credit isn’t a factor when the transaction is between Party A and Party B (when the parties are actual human beings who don’t require the involvement of a bank or agent).

There is no rule that says a buyer can only work with one seller and buy only one property. In fact, once you understand how to negotiate and structure seller-finance deals, you can do them all day and night. You can buy more and more properties the exact same way. It’s a replicatable system. (Ask me how I know!)

You can build a portfolio of profitable properties with seller financing. You can’t do that using traditional lending strategies. In fact, banks will say no to you after your first couple of properties. They actually won’t lend to you. Sure, you could turn to a hard-money lender, but why would you if instead you could find sellers who are willing to work terms with you and carry all or part of your deals?

[tweet “You can build a portfolio of profitable properties with seller financing.”]

What’s the reason they’ll agree to work with you? Because you are solving problems for them.

Becoming a problem-solver through real estate transactions needs to remain your focus. As a real estate investor that’s what you are… a problem-solver. You aren’t in it for the money, though you will earn plenty. You are in it to solve problems. As a buyer you can solve sellers’ problems by negotiating seller financing.

To be really effective in doing so, you need to understand your Investor Identity well. Some great information about the importance of understanding your Investor Identity is found in podcast episode 108


Follow that up by listening to episode 109. It goes deeper into the Investor Identity, and you’ll learn about mindset and skills, too. You’ll enjoy it. Take notes.

7. The buyer can offset income tax expenditures by buying more properties faster.

That’s because each single-family home you purchase as an investment property depreciates over a 27.5-year schedule. For commercial properties it’s far longer. Plus, the buyer can break the depreciation into line items, because all things he uses to improve the property (i.e., door knobs, hardware, appliances, etc.) have their own depreciation schedules. This can be a super tax-saving strategy!

The more investment properties you have the more tax savings in depreciation you can receive. However, this is also a pretty involved discussion and I’m not a tax expert, so instead of going into it here and now, I’ll send you over to YouTube to watch a quick video.

NOTE: Be sure to seek the guidance of a tax expert who understands depreciation schedules.That way, you’ll be sure to get every penny you’re entitled to come tax time.

8. Both buyer and seller can negotiate their own terms.

By working directly with each other, they can hammer out all the details without third-party intervention. This also keeps costs down at closing.

While the purchase price may be actually higher (because you are buying over time) and the interest rate may be higher than what you’d pay in a traditional lending situation, working with the seller directly paying on installment can be a huge win for both sides.

The buyer doesn’t have to qualify like he would in trying to get a bank to lend him the money to buy a property. He doesn’t have to worry about his credit score, because the seller isn’t going to care. All the seller cares about is if the buyer can live up to the negotiated terms.

There are lots of reasons for an individual’s credit score to take a nose dive. Divorce, loss of a job, medical issues and other big life events can play havoc with your good credit, but with seller financing you can have a score in the 300s and it won’t matter. (Mine wasn’t even hitting 400 when I started out as a real estate investor.)

Plus, with seller financing, the buyer pays no points, loan origination or mandatory underwriting fees, appraisal costs, fees for a bank running credit reports or any of the other “junk” fees conventional lenders tend to charge. This can add up to literally thousands of dollars in savings.

It seems like every day I get asked how on earth someone can buy properties for little or no cash out of pocket.

People want to know how to structure deals so the seller will agrees to carry the financing.

They want to know about all the great creative acquisition strategies that they might use to invest in real estate.

Hey, that’s why Cash Flow Diary exists… to teach these strategies and change lives.

If you are SERIOUS about learning how to do real estate investing using creative acquisition strategies such as seller financing, subject-to, lease purchase options and more, now’s the time to take action. It’s ALL inside the Cashflow Core Membership. And it’s more affordable than literally any other such education I’ve come across.

Don’t take my word for it. Do some research and then sign up for our trial membership offer.


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