Structure Seller Financing To Sell

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Topics: Financing

I was driving down the highway when I saw a sign that proclaimed in large letters: NEW HOMES. NO DOWN PAYMENT. NO INTEREST. NO PAYMENTS FOR THREE YEARS. This triggered a number of thoughts:

First of all, it raised the bar on all sellers of comparable homes, new or used. When a buyer can buy a brand new house and live in it at no cost for three years, how can anybody else sell a house in the same locale and price range who isn’t willing to compete with these terms?

Second; in order to be able to offer these terms, clearly, the home-builder had to come to some agreement with the lender who funded his construction and development loans. That says to me that the lender must also be in dire straits to be willing to do this. It might behoove me to find out who the lender is, and to see if it has any other property in inventory that it might be willing to make a similar deal on. I don’t much care what the price range is, if there are no payments or interest for three years, that opens up all sorts of possibilities for reselling it either at a higher price with the same terms, or even at a lower price with payments and a higher interest rate. Or, at least, to be able to rent it for positive cash flow on a lease/Purchase or lease/Option contract.

Third; the lender must have figured out that selling this way was far more advantageous than sitting on empty inventory that would still require security guards or fences, property taxes, insurance and possibly utilities if lawns are to be kept green, mildew and mold is to be kept down, and pipes are to be kept unfrozen. Put yourself into the shoes of a builder with 100 houses that would consume about $5000 per year for all of the foregoing expenses without counting loan interest. That boils down to half a million dollars per year that can be saved this way.

Last but not least, the house that can be bought this way still has a price equal to that at the top of the market. The neither the builder nor the banker has acknowledged taking a loss; and as events turn out, they may never take a loss if the market returns and the occupant starts making payments on the house. Given, that many of the buyers will just walk away if prices haven’t returned to last year’s levels, but even so, it will cost a lot less to refurbish a house for sale than to maintain it as a vacancy.

If you are having trouble selling, how creative are you prepared to be?

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