If you're looking for a way to maximize your profit on a real estate deal, then seller financing is the answer.
This article will go over the basics of this type of financing, including its advantages and drawbacks. It will also discuss how it can be used in land flipping to make money. Read on to find out more!
How You Make Money In Land Investment
The goal with flipping anything, from land to houses or any asset, is purchasing for the least amount of money and selling for the most. The higher your margins, the more your profit, but your margins can easily disappear as you sink your money into repairs and improvements in traditional real estate.
On the other hand, raw land requires no investment on your part beyond the initial purchase, besides taxes. And to top it off, you can easily buy parcels of land for pennies on the dollar with the right strategies.
First, you want to target the right properties. Your target areas should be path-of-growth properties, infill lots, and land that can be used for recreational activities. These areas can be flipped easily and quickly so that you won't be stuck holding onto land and paying property taxes.
An expert land flipper knows to look for the unmotivated sellers, meaning the people who don't want their land but had no intention of selling it. By the time a property hits a listing site or government auction, your margin has all but disappeared.
However, by using a technique known as seller financing, you can flip land without ever having
to worry about losing money.
What is Seller Financing?
In its simplest form, seller financing is when the property owner provides the financing for the sale. This type of loan is often used in real estate transactions where the buyer doesn't have enough money to buy the property upfront, and they can't (or don’t want to) get a traditional loan.
So you would sell your $20,000 property for 20% upfront and then collect monthly payments over a period of 12-24 months, depending on your rates.
We see this especially in land investment because a bank likely won't give out loans to purchase raw land without building plans.
And either way, offering seller financing on your own is faster than applying for a standard loan, allowing you to make more deals faster.
Why Offer Seller Financing?
You are probably asking yourself why you would collect $20,000 over 2 years instead of finding a buyer who can pay it upfront. The answer is two-fold.
The first consideration is that you can pay for the property with the buyer’s downpayment. If you bought the property for $5000 and then sold it for $20,000, you can ask for a downpayment of $5000. All of the monthly payments, plus the interest on the outstanding balance calculated monthly will mean that every single check that you get in the mail for the duration of the contract will be 100% pure profit.
The answer: Seller financing allows you to cash flow land deals to provide a passive income stream for years to come.
If you decide that you would rather collect a lump sum for your seller finance deal, you have the option to sell your note to a third party for a lump sum.
Rural properties are a good example of this scenario. For many rural properties, your target buyers are retirees without the money to live in a high-cost senior community or buy a new home. So instead, their best option is to buy a plot of land and move a mobile home onto it.
They do not have $20,000 to spend on a property, but they do have $300 a month that they can comfortably take from their pension and pay off the loan.
So to sum it up, seller financing is all about improving your margins. As is the goal in any business transaction. And as an added bonus, you get to help out someone afford a life they never could have before.
Also, it is low risk, because if the buyer defaults on their payments, the property returns to you. Then you can resell it to a new buyer while keeping the profits you had made from the last.
Turning Your Land Investments Into Passive Income
Everyone is looking for new ways to make a passive income nowadays. And you may have heard before that the only two true methods of making passive income are through real estate and the stock market.
While land flipping gains typically come in lump sums, seller financing allows you to turn a chunk of that profit into longer-term passive income, at no risk to you.
With just four seller-financed deals at rates of $400-$500 a month, you could be seeing a monthly paycheck of $2,000. And four deals is not a difficult feat at all by an experienced investor's standards.
Conclusion
Seller financing is by far one of the fastest and easiest ways to make money in real estate investing. And it's a great way to increase your profits while providing a valuable service. If you want more help in understanding seller financing and other real estate strategies, then check out our next event!
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