When you want to sell your property, you are probably looking for someone who can qualify for a bank mortgage to buy your home, right?
Of course, you have to pay off your mortgage … or do you?
Assuming you are successful in finding a buyer, the costs of the sale will probably wipe out your equity, or profit on the sale.
The National Association of Realtors estimates that the average home sells for approximately 9% less than the asking price.
Take out 2% -3% for the seller paid closing costs, approximately 3% for the on-going costs of mortgage, taxes, insurance, maintenance and repairs for the 90-150 days between listing and closing, and you have lost at least 14% of the value of your home to the costs of selling!
Imagine having to subtract another 6% for the realtor!
And, if you are the average homeowner, you have less than 25% equity in your home to start with, according to the National Association of Mortgage Bankers.
Do the math and you will see that you will walk away from the sale of your home with virtually nothing, except …
For every property for sale, including yours, there exits a market of "Phantom Buyers."
These are people who would love to buy a house like yours, but who can not or will not qualify for a bank mortgage.
They may be self-employed business people, small business owners, or foreign nationals. They do not want to have to show tax returns, financial statements or assets. And yes, there may be others in this category with bad credit resulting from a personal or business reversal.
What they all have in common is that, in most cases; they have plenty of cash and the income to support the monthly payments necessary to finance the purchase of your house.
When you offer your home on terms that meet their needs, with seller financing, these Phantom Buyers will gladly pay you 20-30% more than the fair market value of your home.
You will double or triple your profit from the sale!
However, there is only one way to be able to sell your home with seller financing to someone else without them having to get a new mortgage to replace yours.
You must place the title to your home into a properly structured land trust, then you sell it with seller financing to one of the Phantom Buyers.
Remember, you will not need money to pay off your mortgage! This will certainly limit, if not eliminate the need for substantial amounts of cash at the closing.
The new buyer usually pays you a basic down payment, sometimes even the total amount of equity you have in the house, then makes payments on the balance; if any of your equity, and takes over the payments on your mortgage.
You could even decide to take a sail boat, a Mercedes Benz or any other valuable item as all or part of the down payment. You are the Bank, you make the rules!
The term of the deal can be anything mutually agreeable, from a year or two to 20 years or more.
Incidentally, you can probably add a point or two to the interest rate on the balance you are owed, providing you with a care free, passive income for as long as the buyer is paying your mortgage.
For example, your mortgage is $ 200,000 at 6%. There is also $ 50,000 of your equity the buyer still owes. You require him to make payments to you at the rate of 8%. You are now receiving 2% on $ 250,000 or $ 5,000 per year, passive income with No land lording headaches!
The situation is similar to financing a car through the bank. The "owner" of the car uses it as he pleases. The only thing he does not have is the title to the car. The bank holds it until it is paid off. If the car gets blown up in an accident, the buyer does not expect the bank to fix it, even though the bank is the true "owner" of the car.
Your buyer has all the rights and benefits of home ownership, including the tax write offs for the mortgage interest, real estate taxes, etc. The only thing he does not have, is the title, which is held by the trustee of the land trust.
You have sold your house for the fair market value or higher
You have 100% or most of your original equity at closing
You will receive a steady passive income for years
You will receive another cash infusion when the new owner gets his own mortgage or when he sells the property.
It is not unusual for you to make two or three times more profit than you would have walked away with in a sale to a "normal" buyer:
You get upfront cash
You get positive cash flow every month
You receive cash profit when your buyer cashes you out
Your equity increases as the mortgage is paid down
You can write off the depreciation from your taxes
All this with no more tenant, toilet or trash problems!
If your new buyer fails to keep the property up or fails to make his payments, you notify the trustee and he is evicted, with no cost or time consuming foreclosure needed.
You simply find another "Phantom Buyer" with another down payment and start over.
The land trust is a little known device used by wealthy property owners for hundreds of years to protect their assets and provide complete privacy for their property dealings.
Oh, almost forgot. Since this is not a "Sale", (the title remains in the name of the trustee) you do not pay any transfer tax, real estate taxes do not go up as the property is not reassessed and you do not have to pay any income tax on your gains!
Especially important if you are selling an investment property.
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by Bill Young