IS IT CRAZY TO SELLER FINANCE YOUR RENTALS — OR CRAZY NOT TO ?
By Eddie Speed
We ’ re now in a note cycle . It ’ s as obvious to a note guy like me as when an oil guy hits a gusher .
I ’ ve been a note guy since 1980 . As anyone in any phase of real estate knows , the market is constantly changing and evolving . We either change with it or get left behind . I can say from experience that what worked in one decade wouldn ’ t work in the next . And so on for the next , and the next , and the next .
Which leads us to 2023 . We ’ re seeing a market phenomenon that ’ s producing a phenomenal opportunity .
I ’ ve lived through cycles where owning rental properties made a lot of sense financially . But in today ’ s market , not as much . You owe it to yourself to test your investment strategy . Run the numbers and compare the profit potential of owning rentals versus selling your rentals with seller financing . Because of today ’ s high home prices and mortgage rates , I predict you ’ ll discover it makes more sense to be the bank ( with NO expenses like taxes , repairs or insurance ) instead of being the landlord ( paying ALL those expenses ). I bet you ’ ll also realize how much more income you ’ ll bring in every month by seller financing instead of renting .
HERE ’ S WHY NOW IS THE TIME FOR SELLER FINANCING
If you ’ ve ever dropped a coin into a slot machine , your eyes would pop out if all the dials lined up . Well , when it comes to dropping some money on an investment , all the dials are lining up on seller financing — especially in regions of the country where rents have dropped significantly . Here are some of the factors we ’ re seeing in today ’ s market :
• RENTAL HOUSE AFFORDABILITY
The cost of buying a potential rental house is the highest since at least 1996 . If you get a mortgage around 8 %, and pay an inflated price in this economy , you ' ll pay 60 % more than buying the same house three years ago . This makes it very challenging to scale up your rental business . On the other hand , if you sell your rental houses now with seller financing , you ’ ll get substantially more than three years ago . And you ’ ll be getting double or triple the interest now than you would have gotten three years ago .
• INCREASES IN RENT ARE WAY BELOW INCREASES IN PRICE
Averaging all US markets together , the cost of buying a house is up 60 %, but rents have risen only 22 % during the same 3 year period . In many markets ( mainly in the western half of the country ), rents have declined since last year .
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