Owner financing is an extremely popular way of purchasing property in the USA, but a lot of people want to know how to create a positive cash flow by using owner finance in Australia.Owner finance can be a great method of turning any property into a positive cash flow investment. This blog post will teach you the fundamentals on how you can generate yourself a positive cash flow passive income through owner finance.
What is Owner Financing?
Owner finance is where you, as the owner of a property, provide finance to the buyer of the property instead of finance being provided by a traditional lender such as a bank. This source of finance is beneficial to the buyer and seller for a number of reasons.
Benefits of owner financing for Buyer
Owner finance for a buyer has many benefits, including:
1. Easy Qualification
The buyer, in many cases, prefers an instalment sale to conventional financing because it does not require traditional bank income and credit approval, where there are increased and sometimes unnecessary, strict lender guidelines.
2. Credit Rating
An instalment sale may give the buyer a chance to improve his credit rating by owning a home and making payments timely.
3. No Loan Costs
One of the biggest benefits for the buyer is not having to pay the costs associated with conventional loans.
Points, origination fees, underwriting charges, appraisal, credit reports, title insurance and an array of other "junk" fees charged by conventional lenders can amount to thousands of dollars at closing. The buyer is free from these with an owner-financed instalment sale.
4. Fast Closing
A buyer can close and move into a property within days, since there is no third party lender holding up the transaction.
Benefits of owner financing for Seller
Owner finance for a seller has many benefits, including:
There is no doubt that a seller can insist on and receive the highest price when offering flexible owner financing terms. In many cases, the seller can receive more than a fair market value of the property by offering these soft terms.People are always willing to pay a premium for non-qualifying financing.
Nearly every seller says he wants all cash, but few need it. What the typical seller wants is the most net cash from the deal. Often, the seller has to pay closing costs, title insurance, broker fees and the balance of existing financing. In addition, there may be capital gains tax
. In many cases, the sale of a property by an instalment sale will net the seller more future yield than any source from which the cash proceeds were reinvested.
Nothing holds up a sale more than new lender financing. Sometimes it can take months for a buyer to qualify and close a new loan to purchase. Since most standard real estate contracts contain a financing contingency, you may end up back at square one if your buyer does not qualify. Furthermore, it may take you some time to even find an interested buyer.
There are many different financing benefits available to real estate investors, including the use of fractional property investment platforms such as CrowdfundUP
Don’t let the upfront capital requirements of buying investment properties scare you away. Instead, look into each of the methods above and explore all the options available to you.
The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
Oct 17. 2017
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.