The Advantages of Owner Carry in Real Estate

BY: Paul Z. Matysek, CCIM

For one, buying a home for sale under Owner Carry terms means the current property owner finances part or all of the sale, usually through a second mortgage, although sometimes the owner will carry the entire loan.

This arrangement is particularly beneficial for the seller because it makes for a swifter settlement with little or no problems. Naturally, every real estate seller will want the highest price and all cash. But sellers also want to pay the least amount of capital gains as possible, and this is where the owner carry or vendors finance becomes advantageous for him/her.

With flexible vendors finance terms, real estate sellers can insist on and receive the highest price for their properties. In some cases, their asking price can even exceed the normal market value for properties.

Of course, it’s not always about high asking prices. What really matters for the seller is the most net cash from the deal. Often, the seller has to pay settlement costs, broker fees and the balance of the existing financing. In addition, there may be capital gains due as well. In many cases, the sale of a property through vendors finance terms rewards the seller with more future yield than any other source from which the cash proceeds were reinvested.

Another obvious advantage of owner carry terms for the seller is quick settlement. Most buyers don’t readily qualify for home loans, which can delay real estate sales. With vendor finance, both parties are spared from the trouble of time-eaters like appraisal, underwriting, survey, etc, and thus deals are closed quicker. Sellers can take charge in selling their property on their own, without having to shell out real estate agent’s fees.

Finally, with a owner carry/vendor finance sale, there is less tax involved. As the seller receives the full sales price in cash or as 1031 exchange proceeds in the case of an investment property sale, he or she only pays gains to the extent you receive payments each year.

The seller carries a tax basis in the note equal to its face value, and will only pay tax based on the interest received, not on repayment of principal, which means more tax savings.

Just as Owner Carry Sales has its advantages for the seller, buyers too get a sweet deal from such arrangements.

One of the major and obvious benefits is that the buyer is freed from the often-high costs associated with conventional loans. Conventional lenders can be cutthroat, charging thousands of dollars for needless services like conveyancing, underwriting, property appraisals, credit reports, title insurance, etc.This makes Owner Carry or Installment Sale ideal for buyers who don’t have sufficient income to prove and to qualify for a home loan. In particular, vendor finance comes to the rescue of buyers who have poor credit rating.

Even if buyers do find the ideal property for sale in the right price range they can afford, and even if they finally qualify for a loan, oftentimes the rate would still be huge. And nowadays, you would be hard-pressed to find lenders willing to offer fixed interest rate loans to people with poor credit rating. Indeed, a rent-to-buy home sale can even give the buyer a chance to salvage and improve their credit rating precisely because they have a home they can pay for punctually.

Finally, without unnecessary ceremonies in the way, buyers can settle and move into their new property within days since there is no third party lender holding up the transaction. All in all, however which way you want to call it, whether owner carry or vendor finance, the arrangement is becoming popular in real estate sales nowadays. And it is empowering both seller and buyer.