1.How and why would a seller make a sale to a buyer that has no money the seller can use? In the event that the seller does not need the money, the seller will gain by holding PAPER. In this event I sell you the house, you pay the closing costs and sign for a mortgage. The mortgage is payable to me. NOW I EARN 6% on my mortgage value instead of selling it to the other guy, getting cash and earning 3% on the money in the bank.
I'm no business man but I need to point out several tbings.
a. You are earning an extra 3%; however, you also have the risk that the buyer can't make the payments in which case you must pay them or lose the house AND you don't get any interest.
b. You are earning an extra 3% but on how much? Not much I don't think. The buyer pays you, you pay the lending agency, and that leaves you with 3% of the difference between the payments to you and the payments you make to the lender.
c. Actually, the money you make may be less than that because you could choose to live in the house. Instead, you must be paying rent or house notes on another house which means you are paying for two houses PLUS INTEREST ON TWO HOUSES.
d. Personally, I don't think it's such a great deal. As I said, however, I'm no business man. There may be those who think it is a good deal but I would prefer to live in the house and take the money I would pay for rent (or for a mortgage on another place to live) and purchase insured general obligation municipal bonds. And the money I would make from the bonds each year plus the money I would save from not paying taxes on that money would make a tax equivalent amount of about 6-7%. That's better than 3% any day of the weak AND it doesn't assume the risk of a second mortgage.
c.
day of the weak AND it doesn't assume the risk of a second mortgage.
OOPs!. I proofed before I hit the submit button but I didn't catch the "weak" for "week."
In this scenario, the seller might agree to make a sale to a buyer who has no money because they believe there are other benefits to be gained. Let me explain the possible reasons behind this decision:
1. Higher interest rate: By holding a mortgage on the property, the seller can earn a higher interest rate compared to traditional investments like keeping money in a bank account. In your example, the seller can earn a fixed 6% interest on the mortgage, whereas in the bank, they would only earn 3%.
2. Long-term income: The seller can enjoy a steady stream of passive income by receiving monthly mortgage payments from the buyer over the duration of the mortgage term. This can be appealing to some sellers who prefer a regular cash flow instead of a lump sum of money.
3. Reduced risk: If the seller believes the buyer is trustworthy and reliable, they may be willing to take on the risk of the mortgage payments. By holding the mortgage, the seller has a legal claim on the property in case of default. This provides some level of security for the seller.
4. Tax advantages: Depending on the seller's financial situation and local laws, holding a mortgage may offer certain tax benefits, such as deductions for mortgage interest.
It's important to note that this decision is a business strategy chosen by the seller, and it may not be suitable or feasible in every situation. Additionally, the seller should carefully evaluate the financial stability and creditworthiness of the buyer before proceeding with such an arrangement.