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Real Estate Financing

What is the best source of real estate financing? Perhaps a bank? Maybe a S&L? Or a mortgage broker? Wrong! The best, most flexible, easiest, low-cost source of real estate financing is the seller of the property.

Not every seller will agree to help finance a buyer's property purchase. But many will, especially when the buyer or the real estate agent explains the benefits to the seller. These benefits for property sellers include quick, easy sale for top dollar, interest income higher than can be safely earned elsewhere, and profit tax deferral until the buyer makes principal payments to the seller.

The primary advantages of seller financing for buyers include no red tape obtaining new financing, quick closing, and an affordable, often below-market interest rate.

When a property seller helps finance the sale, the simple installment sale rules defer the profit tax until the buyer makes payments on the principal balance. Some sellers carry back "interest only" first or second mortgages and defer their profit tax for many years. However, the interest income is taxable to the seller as ordinary income.