American homeowners are selling properties in record time. That’s a great thing, right?
But many are making a big mistake:they are paying too much in selling costs.
According to Redfin and Realtor.com, the total cost to sell a property adds up to a whopping 10% of the sale price. That includes commissions, fees, repairs and a long list of closing costs.
Now, do people really want to pay 10% to sell their house? Of course not. But to most people “that’s just how it is”. Here’s the thing: it’s not.
There’s a way of selling your property for full market price AND get the buyer to cover all the selling costs….and be happy to do it. Here’s how it works:
Let’s say you have a property worth $350,000 with a mortgage balance of $200,000. This means your home equity is $150,000. Instead of paying $35,000 (10%) to sell and only pocketing $115,000 with a normal sale, you use the “delayed cash sale” method to sell your property. This method lets you keep all of your $150,000 of equity which is like investing your $115,000 and getting a return of 30% ($35,000) on that money.
If you’ve seen the interest rates banks are paying on CDs and savings accounts, you already know that it would take a LONG time to get 30% on your money.
How it Works
The delayed cash sale method works like this: you and the buyer agree to a “lease purchase” contract which locks in your equity and sets the closing date for the sale in a few years. The buyer takes over all responsibility for the property like an owner, and pays your equity over time. You just sit back and collect your passive income until the closing date. If you don’t have a mortgage then the contract would be an installment sale. Either way, you would end up with the same amount of money at the end: a lot more than selling the normal way.
The Monthly Payment
The payment amount is set so the seller and buyer both can make some income based on the rents. In our example, your $150,000 equity might be paid out as $500 to you (after paying the mortgage and all the property expenses), leaving a little cash flow left over for the buyer. The idea is the buyer takes over all responsibility for the property and agrees to pay you monthly like a bank for a period of time. Once that time is up, the rest of the money owed to you is paid off.
When the buyer takes over the property on the lease purchase, they generate income from a “tenant buyer” who agrees to buy the property within a specified amount of time. They are a rent-to-own buyer who is typically a family that mortgage lenders can’t qualify for a loan yet but are on their way. They commit to buy the property and follow a Mortgage Ready financial program to get them qualified to buy. They are screened as if they’re buying the property now which means they are better tenant quality
Let’s say that based on the market rents, the property can afford to pay you about $500 per month for 4 years and the rest would be due at that time. You become “the bank” and receive $6,000 of passive income per year for 4 years for a total of $24,000 ($500 x 12 months x 4 years). At the end, the buyer will pay off the remaining $126,000 (which is the original $150,000 equity less the $24,000 paid). Keep in mind, the remaining $126,000 paid at the end is still more than the cash you’d have walked away with if you sold the normal way on the market.
Benefits for the Seller
By simply waiting for a little while to receive all of your equity, you get a number of benefits completely passive income for the seller.
It’s fully secured by the property and insurance, so you would get the property back in as-good or better condition than when you sold it.
As the seller, you also get to pick the closing date that works for you.
Benefits to the Buyer
The buyer is able to purchase an income property and work to re-sell it to their tenant buyers. They get to pay real people — the sellers, instead of big banks which allows them to pay the best prices by not being restricted by appraisals and all the loan fees. The buyer also collects a small monthly cash flow from the rental income which keeps the business running until the property is re-sold. The tenant buyer pays a slight premium price for the property which is where the buyer makes their profit.
The seller is protected from loss in several ways. The buyers pre-sign an agreement that automatically gives the property back to the seller if they fail to pay. Insurance is required at all times and tenant buyers are heavily screened in addition to bringing a significant deposit. Putting money in the bank at 1% interest doesn’t give you this kind of secured returns!
Who is this not for?
There’s one group of sellers that this method isn’t good for: people who absolutely need all their equity at closing.
If you need all the equity in your property for something else immediately, then the “delayed cash sale” won’t be a fit for you. If you’re wiling to be paid an extra 10% of your home’s value in exchange for taking your payments over time, then it’s a great way to generate passive income and improve your finances.
How to Find a Buyer
At this point you’re probably thinking “this sounds good, but where in the world would I find one of these mythical buyers who want to pay me more?”. You could certainly find your own tenant buyer, vet them with a mortgage loan originator, manage the property and close the sale to save even more money. If you’re interested in doing this yourself, let us know and we can point you in the right direction.
You can also sell your property to us! Our business model is built around buying property using this delayed cash sale method. We learned how this works by studying way that sophisticated investors in the commercial real estate world buy and sell properties every day. They find a way to pay 2% or less in selling costs by creating a win-win deal between the buyer and seller by building an offer for the property customized to match the needs of the buyer and seller — not what the banks and agents want (which is for you to pay more and up-front!).
We’re offering free consultations with sellers to find out if the delayed cash sale is right for your situation. Our helpful consultants are excited to show you exactly how you’ll come out ahead compared to listing with an agent or selling to a “we buy houses” investor.
Don’t give away your equity when you sell your property. Let us help you keep it so you can build the life you want.