Step 2: Have your agent set up a wildcard *cash* search in text MLS search.
Many sellers (and even agents) don't know they can put seller-financing as a data entry in the MLS. But even more don't know how to recognize when the property being sold is a perfect candidate to be seller-financed.
Many listings default to language like "cash preferred" or "only cash offers accepted." But do you understand why listings that mention cash are the best candidates for seller financing?
It's because the seller or agent already know that these properties are going to have a hard time getting financing from a traditional bank. They don't want to go under contract and then have the deal fall apart because of financing. So they default to accepting cash-only offers.
Which then begs the question, why would the property have trouble getting a traditional mortgage on it?
In my 23 years of experience, the reasons I've seen a bank refuse to finance a property have been:
- Condition of property is too bad. Major foundation issues, missing appliances, compromised roof, mis-zoned, or a property deemed currently uninhabitable for any reason will likely get the snub from a big name mortgage lender.
- Property is too unique and appraisal can't be done. I've run across completely safe and livable primary residences built as a log cabin and one as a castle in a major city center that just could not get appraised. It was too unique and no one could put a value on it.
- Title is clouded or has red flags. Possibly there is a lien on the property, surprise easement recorded in the past, conflict on who actually owns the house. I've seen $30,000 unpaid water bills, $100,000 contractor liens, and mortgages that were paid off but not recorded properly.
Ok, so now you are definitely asking, "But Alan, why would I want these properties?"
Good question! You might not want them! And that's ok. Something that may lead to seller-financing doesn't automatically make it a good deal.
But here is what's important. Whatever is going on, the seller has a problem. And the seller thinks cash is the only solution. The cash buyer by-passes the mortgage lenders, the appraisers, and goes straight to closing. This also happens with seller financing. So a cash buyer is happy to get the property at a discount to handle and work out these issues after closing. You can create the same scenario with an offer like this:
"I'll buy your property for the price you want and I'm happy to solve the problems with the property post-closing when I'm the new owner. I just need you to work on terms for to get there. I'll buy with $0 down payment, you provide the 100% mortgage to me, with [percent rate] and [length of loan.]"
And the variables of interest rate is completely open to you. I've done 0% interest rate for 1 year (and then I have to refinance once the problem is solved) and I've done 7.5% for 15 years and 5% interest for 30 years and everything in between.
This is just a long way of saying properties listed as cash-only typically have problems. Seller-financing solves these problems just as much as cash does. So create a *cash* wildcard search.
Today's search nets me 1297 results: