Seller Financing of Real Estate is Back

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Rising real estate prices and interest rates have sparked memories for me of the 1980s, when I made my living as a real estate broker. Those were the days of 12% mortgages, which put home ownership out of the reach of many. Seller financing, where the seller rather than a financial institution makes the loan to the buyer, was a common way to buy and sell property without involving bank financing.

I went three years without ever taking a client to a bank.

Today, cash deals have become the gold standard in real estate. I haven’t been aware of a seller carrying back financing for decades. But rising interest rates are giving some sellers an opportunity to broaden their opportunity set.

When someone references selling on a contract for deed, a mortgage, or a deed of trust, these are the legal names of the instruments used in seller financing. The following property owners may be candidates for seller financing:

1. Those with a lot of equity in their home and no immediate need for the sales proceeds other than investing them;

2. Those who want a higher rate of return than a bank savings account or CD;

3. When getting your price is more important than getting cash;

4. When tax consequences would improve if the purchase price was spread over two or more years; and

5. Those who own unique properties where bank financing is not available, like land or mobile homes.