Do you have property for sale, but unable to find a qualified buyer? Selling real estate has become increasingly difficult as property owners compete with banks liquidating discounted foreclosure homes. Add in declining property values and stricter lending restrictions and it’s easy to see why homes for sale are sitting on the market for months on end.
In order to liquidate property for sale, many homeowners are offering creative financing strategies such as lease purchase option agreements, subject 2, and seller carry back mortgages, while others trade properties using 1031 exchanges. One thing is certain, the real estate market has drastically changed over the past 3 years and in order to sell properties, sellers must consider all options.
3 Creative Financing Strategies
Lease purchase option agreements involve renting a home to tenants who want to buy the house, but unable to qualify for bank financing. Lease options are relatively flexible, but sellers must abide by state laws. Therefore, lease purchase contracts should be executed by a real estate lawyer.
Using a lease option, tenants provide a down payment to the seller and a portion of monthly rent is contributed toward the property purchase. When the lease option expires, tenants must apply for a bank loan to buy the house.
Subject 2 can be used when property is secured by a mortgage note. Buyers assume the loan payments using the seller’s good credit. Property rights are transferred to the buyer, but loan documents stay in the seller’s name until the buyer qualifies for bank financing.
Careful consideration should be given prior to entering into a Sub2 contract. While this option can be beneficial to both parties, sellers must engage in due diligence to ensure buyers can afford mortgage payments. Buyers must engage in credit repair strategies so they can qualify for a mortgage loan when the subject 2 contract terminates.
Seller carry back mortgages require sellers to act as the mortgage lender for all or part of the purchase price. Most sellers who offer this type of financing only carry back a portion of the loan and require buyers to obtain bank financing for the balance.
Also referred to as ‘owner will finance’, seller carry back contracts generally extend for 2 to 3 years to provide buyers time to improve credit scores and accrue down payment money. When sellers offer partial financing, mortgage lenders hold the first mortgage and sellers carry the second mortgage. Once the contract expires, buyers refinance mortgages through a lender.
Each of these creative finance options allow sellers to generate cash flow from their property for sale while providing buyers time to restore credit. Sellers retain ownership of their property during the contract period. If buyers are unable to qualify for bank financing when the contract ends, sellers can list the home for sale or enter into a new contract.
Exchanging Property for Sale
Real estate investors can exchange like-kind property for sale using 1031 exchanges. This strategy has been used for years, but has increased in popularity since the real estate market collapsed. 1031 exchanges must be managed by a Qualified Intermediary (QI) who handles all aspects of the transaction. 1031 exchanges allow investors to defer capital gains taxes on replacement property, as long as the transfer abides by IRS codes.
Selling Property for Sale to Real Estate Investors
One lesser known way to liquidate property for sale is to sell houses to real estate investors. While sellers won’t earn as much profit, this option can be beneficial to sellers facing foreclosure or those who need to sell their home quickly.
Investors buy all types of property. Whether you own an ugly house in dire need of repairs or a mega-mansion, chances are investors are looking for what you offer. While they won’t offer top dollar, selling to real estate investors can solve home selling problems.
As with any real estate transaction, it is imperative to conduct due diligence to ensure you are selling to a reputable buyer. Take time to conduct credit and background checks, contact references, and enlist the help of a real estate attorney to ensure contracts are legally binding and property transfers are properly recorded.