Seller Financing

Seller financing is a sale in which the seller acts as the lender, taking a promissory note from the buyer for part or all of the price instead of cash at closing. In BRRRR it can replace the hard money loan on the buy step, often at a lower cost.

Terms are whatever the two parties agree to: down payment, rate, amortization and a balloon date. A free-and-clear owner who wants monthly income may accept a lower rate and no points, which cuts the holding cost that eats into every BRRRR deal. On the default numbers, points and interest on the short-term loan come to $20,250.

The seller note has to be paid off at the refinance, so the balloon date must leave time for the rehab, a tenant and any seasoning period the new lender requires. If the seller keeps an existing mortgage in place, its due-on-sale clause is a real risk to raise with an attorney first.

Further reading: Seller Financing on Wikipedia.