In today's market it is often times difficult to get financing, particularly on high end properties. I am a Realtor who specializes in beach front property in South Orange County, Capistrano Beach to be more specific. There is one way to get around lending constraints and that is a real estate transaction structured with Seller Carry-back Financing. Seller Carry-back financing is when a homeowner takes a portion of their equity and uses it to act as a second lender.
Seller Carry-back Financing typically only happens in 1-2% of real estate transactions. However, I work specifically with an area in which 15-20% of the transactions include Seller Carry-back Financing. I was recently involved in one, on Beach Road in Capistrano Beach, California. The property sold for 3.2 Million and of that 1.7 Million the seller Carried Back. We structured the transaction so that the seller would get 5% on this money over a 5 year term. I have been involved in many of these transactions and they have several benefits, some of which include:
Payment of Capital Gains Dispersed
Because there is not a large lump sum of profit, the full Capital Gains are not paid all at once. The seller will pay Capital Gains only as they receive the revenue.
Better Than Average Interest Rate
ROI- Better than Average Interest Rate on Return
Some Bank accounts have as little as a 1% return rate. The interest rate can vary per deal, but usually it is upward of 5%. Why make 1% on your money when you can make 5%?
No Appraisal Required
Often times an appraisal can be a deal killer. If the buyer and seller agree on a price, but the lender does not think the property is worth that much the loan will be denied. With Seller Carry-back Financing an appraisal is not required like it is on a standard kind of loan.
With Seller Carry-back Financing money can be saved in several places. There is not the cost of the appraisal. With the high end transactions I am used to dealing with the appraisal is typically around $1000. There is also no title policy required on the lender side. A title policy will still be required for the seller, but not a concurrent lender policy.
Termite Work- Optional
If there is termite work that needs done on a house the lender will require that this be done before the close of escrow. With Seller Carry-back Financing Termite Work can be requested, but is not mandatory.
If you would like more information on structuring real estate transactions with Seller Carry-back Financing or are interested in viewing some listings I have that are offering this, then please don't hesitate to call or e-mail me.