What is the benefit for either party for doing owner financing?

In Selling Property - Asked by Carmen A. - Feb 13, 2009
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Bobbi C.
San Francisco, CA

For the seller: Regular income stream from the loan payments. The seller could take the pay-off from the sale and deposit it and receive a 2-3% return in a money market versus 8-9% on a loan interest payment. A servicing company can be set up to deal with the monthly collections so the seller doesn't have to worry about it.
For the borrower: At least as good of terms as they would get from the bank if a strong borrower - might be able to negotiate even better terms. If borrower has difficulty getting approved for a conventional bank loan becasue he has an unconventional income stream, sometimes a seller might be more willing to work with the buyer - provided the buyer can prove the income necessary to make payments.

Feb 13, 2009
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Christopher K.
Ellicott City, MD

Benefits for the seller - One of the biggest advantages for the seller is that holding paper equates to an installment sale, which is a mechanism for deferring capital gains tax. The seller only pays capital gains tax as the principal balance is paid down. An interest-only seller-held note offers the greatest opportunity for savings as no principal is paid down during the term of the note.
This tax benefit is so compelling that a vehicle called a Deferred Sales Trust has been developed to take advantage of the installment sales rules to allow sellers to defer taxes without holding paper. Refer to the web reference provided below.
Benefits for the buyer - the seller might be the only source available to finance a particular project, or may offer better terms including higher leverage, a lower rate, or a longer amortization. A buyer can potentially, when permitted by the lender with the first trust, to secure a second mortgage from the seller to garner even greater leverage.

Feb 22, 2009
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Lee A.
Bridgeport, CT

Since banks make it very difficult to conduct real estate transactions, buyer gets the property with least amount of hassle and cost.
Seller gets income stream and tax benefits, and is able to move on quickly.

Mar 1, 2009
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