Are you looking to purchase a real estate investment with no money down? Is so, seller financing can help you accomplish that goal. Here's how:

First, make sure the property that you are interested in is owned free and clear. You don't want any liens on the property popping up to create problems with your plans.

Secondly, you'll need to find a home seller who is willing to carry-back an owner financed note on the property.

Let's assume that you've located a nice, well-kept single family home in a good neighborhood. The owner of the property is asking for $160,000 and wants at least 10% down ($16,000). The property is owned free and clear, and the home seller is willing to take-back an owner financed loan. But, the home seller is adamant about the down-payment. He won't sell without it.

Instead of simply walking away from the home, consider using seller financing to create the down-payment for you.

How do you do that? There are actually many ways. We're going to discuss one way to do it here.

For this method to work, you're going to need to create two separate owner financed mortgage notes. (Trust deeds can be created in the same fashion if necessary.)

The first mortgage will be in the amount of $100,000, amortized over 30 years with a 10% interest rate. The monthly payment amount will be $877.

The second mortgage will be in the amount of $80,000, amortized over 30 years, with a balloon payment due in 15 years. The interest rate on this loan also is 10%, the monthly payment is $702 and the balloon payment due in 15 years will be $65,331.

The next step is selling the first mortgage note. Let's assume that you receive $80,000 as a lump sum in return for selling the entire amount of the first mortgage. What that means to you is that you now have $80,000 available to offer in lieu of a down payment. Though you are paying $20,000 more than the asking price for the home, you benefit by buying the real estate without an out-of-pocket downpayment. You will pay for the home over the next 30 years, $1597 per month ($877 + $702) for the first 15 years, and then $877 per month for the next 15 years. At the end of the first 15 year period, you will either pay off the $65,331 balloon payment or refinance it with a banking institution.

How does the home seller benefit? First, instead of a down-payment of only $16,000, he gets a down-payment of $80,000! That's a whopping 50% down-payment on the asking price for his home. Then, over the next 15 years, he receives a payment from you of $702 every month plus a balloon payment of $65,331 in 15 years. That's a total of $191,691 that Mr. Home Seller receives over the next 15 years, in addition to the $80,000 down-payment resulting from the sale of the first mortgage. Not a bad deal at all!

In the scenario above, the home seller actually received the full asking price of $160,000 for his home. You came out a winner because you purchased the property with no out-of-pocket down payment. The seller came out a winner because he not only received his full asking price, but received a much larger down-payment than he was expecting. A win-win situation for both parties.

However, in many situations, you may be able to negotiate with the home seller over the conditions of the sale. For instance, instead of offering the full $80,000 in lieu of a down-payment, you may find that the home seller will agree to receiving a $70,000 down-payment with a negotiated selling price of only $150,000 for the property in consideration of the large down-payment. If your seller agrees to this, what do you think will happen to the additional $10,000 received at the selling of the first mortgage? That $10,000 is yours to keep! That brings your total purchase price down to $170,000, still with no out-of-pocket down payment.

Now, imagine that. You have just bought a single family home with no down-payment, and put an additional $10,000 in your own pocket at the same time. How do you think that would make you feel? What if you could get the home seller to agree to accept a $60,000 down payment and a total selling price of $140,000? How good are your negotiating skills? 

The above scenario is only one possibility. There are endless opportunities and countless ways to structure a note which will benefit both the buyer and the seller. First Class Cash Flow Handlers can help you work out a solution to fit your own individual needs. Contact them by e-mail or call them directly at (401)258-7158.