If a complete stranger came up to you and pitched an investment that promised high returns at minimum risk while requiring low effort, you would naturally be skeptical. Things that sound too good to be true often are.
The exceptions to this rule occur when ideas are introduced that fall outside the realm of common knowledge. Both history and daily life offer countless examples of knowledge transfer, from the spread of the assembly line and mass production in an era of individual labor and craftsmanship to the proliferation of smartphones in society. All it takes is a small group of early adopters to successfully adopt a new way of thinking or a new piece of technology and the knowledge will inevitably pass through to the rest of society given enough time.
“If you have knowledge, let others light their candles in it.”
Seller financing is a way of selling real estate that the vast majority of property owners are not aware of as of 2016. The reason is not because of its revolutionary nature, it’s the fact that people are turned off by the apparent complexity of the transaction. When the average homeowner looks at an offer that includes some kind of note or other seller financing provision, their initial reaction is often, “Why would I want to take the time to learn how this works instead of just selling for cash or through traditional financing like everyone else?”
Not my idea of a good time
Our philosophy has always been that if you do the same thing as everyone else, you can expect the same results. The average homeowner does not get rich off of real estate. More often than not, their house is their biggest liability, with the bulk of their paycheck going towards monthly mortgage payments. That’s exactly what Bob, his wife Karen, their two teenagers, and their dog Rex were doing for 18 years in Anytown, USA.
Bob and Karen worked hard as an accountant and a nurse respectively to put money on the table and to make time in their busy lives to make sure they were present at their son’s football games and their daughter’s ballet recitals. They had purchased a big 4 bed/2 bath single family residence to raise their family and lived a quiet, happy life as decent, hardworking Americans.
As the seasons went by, time passed significantly quicker than Bob or Karen could have anticipated. In the blink of an eye, their children were all grown up and headed off to College. Their house had grown too big for just the two of them, and the idea of downsizing was brought up to the dinner table numerous times. The main issue is that both Bob and Karen worked demanding jobs and could hardly wait to relax in front of the TV when they got back, let alone consider complex topics like how best to sell their house and plan for retirement. They wanted to sell their house for $200,000, but after trying to sell it themselves for 6 months, neither of them had the time or energy to spend every weekend showing the property to timewasters. They were one step away from enlisting the help of a broker when as luck would have it, one of their neighbors knew of a local real estate investor named Mike who specialized in creative real estate financing. Here is the offer he presented to Bob and Karen:
Instead of paying $200,000 for their property right now, he would buy it over time, allowing them to turn their property into a powerful investment vehicle. Bob and Karen had already considered options such as stocks and life insurance before, indeed, they had already supplemented their existing income with these financial instruments. However, selling their property with an owner financed deal would allow them to act as a banker and earn interest on their property. How much interest? 8%, far higher than any of the current standard “safe” investments in their portfolio.
Mike offered to pay them $1673/month for 20 years, in addition to a $40,000 down payment to cover any immediate college tuition expenses and unexpected events.
They say money doesn't grow on trees...
“You know what Mike? It’s a crazy world out there and we honestly don’t know what’s going to happen to the stock market or to the price of gold these days. Planning for retirement is harder than ever because there are so many people pulling you in different directions. I really want to thank you for explaining how this works. Sounds like a no brainer to my wife and I.”
If Bob’s story sounds like something that you or someone else you know is going through, feel free to give us a call at 551-236-3325 or fill out the “contact us” form below for some personalized, free advice on how a lease option would fit into your current situation with your property, your life goals, and your future financial aspirations.
Written by Brandon Lor