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Seller Financing in Today’s Real Estate Market

Many questions arise around Seller Financing including what is seller financing, what are the reasons people enter into seller financing, when does seller financing make sense, and what are the requirements for a 1031 exchange with seller financing? We will answer all of these in this article.
Seller Financing is an attractive option to buyer and seller alike in today's real estate market

What is Seller Financing?

Simply put, seller financing is when the Seller of a property lends the funds for the purchase of the property to the The purchaser of the taxpayer's relinquished property. Buyer , rather than the The purchaser of the taxpayer's relinquished property. Buyer acquiring the funds through a financial institution. Read this blog for a more detailed explanation of Individual or entity that owns replacement property desired by the taxpayer. Seller Financing.

Reasons for Seller Financing

There are many reasons why Individual or entity that owns replacement property desired by the taxpayer. Seller Financing may be considered in a real estate transaction. Some of the most common reasons could include:

Advantages of Seller Financing

A transaction utilizing Seller Financing can be mutually beneficial to both the The purchaser of the taxpayer's relinquished property. Buyer and the Seller of a real estate transaction. One shared benefit of Seller Financing is that the real estate transaction could be completed in a much speedier manner without third party lending.

Some other advantages for the Seller and The purchaser of the taxpayer's relinquished property. Buyer include:

Advantages of Seller Financing for the Seller

Advantages of Buyer Financing for the Buyer

Example of Seller Financing

Here is a basic example of how Seller Financing can be mutually beneficial financially for both the The purchaser of the taxpayer's relinquished property. Buyer and the Seller of the real estate transaction.

Typical savings account interest rate - 0.5%

Average financial institution loan interest rate – 4%

Loan Amount - $500,000

If the Seller deposited their $500,000 in a savings account at a financial institution, he would earn $2500 in interest over a full year. However, if the Seller offered the The purchaser of the taxpayer's relinquished property. Buyer an interest rate of 2% on a loan of $500,000, the Seller would earn $10,000 in interest over a year on the loan. Alternatively, if the The purchaser of the taxpayer's relinquished property. Buyer got a loan from a financial institution at 4%, he would pay $20,000 in interest over a year to the financial institution, but he would only be paying $10,000 in interest should he accept Seller Financing at the discounted interest rate of 2%.

There are additional considerations for Individual or entity that owns replacement property desired by the taxpayer. Seller financing as part of a 1031 exchange. Learn more about them in this blog article. 

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