Many builders and renovators I know are self-employed. However, it’s not a secret that self-employed people have a more difficult time qualifying for home loans because they don’t have a “stable” income stream. I’m writing this, because banks have a more rigid description of what a stable income stream is, and, in their dictionary, it means having a steady pay check to look forward to every couple of weeks or so.
Sadly, self-employed people don’t have the luxury of a fixed income like most employees. Admittedly, there are a few lean months here and there for self-employed folks like us, but this doesn’t mean that we can’t pay monthly payments on a house. A valid point that banks seem to have overlooked for years.
So where does seller finance come in all of this?
If you’re a self-employed renovator and you want to buy a property, you negotiate with the seller to allow you to pay in terms rather than apply for a new mortgage with the bank! The result is that you are paying the seller as though the seller was the bank. This fact alone is already helpful to builders here in the UK, but, believe me, the deal can get even better!
Rick Otton, one of many property investing gurus in the UK who uses seller finance, says that builders can even use their handyman skills to get their hands on a house! Yes, you read that correctly! Instead of paying money as your down payment, you can use your skills to fix up the place and the improvement you make on the house acts as your down payment.
He wrote in one of his blogs that it doesn’t matter if you’re planning to use the house as a permanent residence or as an income property. What’s important is that you spend enough man hours of work into the house and renovate it back to tip-top shape to off-set the deposit fee you would have paid the seller if you were paying cash. Moreover, it is you, the renovator, who will inherit any appreciation in the property’s value that comes because of your work on the house – and that is what makes this novel set up appealing.
One direct result from providing buyer friendly terms through seller financing is that the transaction moves faster and will, likely, lead to a success. Another result is a seller’s waiting time may be cut in half or more, since buyers, especially handymen, would be lining up your door to get a shot on your property!
Obviously, in a deal like this, the seller won’t be able to get the profit in a lump sum basis. So if the seller needs a lot of the cash now, they will probably think twice about granting you seller finance terms.
Also, in a seller finance deal, it is the seller that bears the responsibility of screening potential buyers to avoid the hassles of a delinquent buyer – or worse – a defaulting buyer. So if you wish to propose terms to a seller, you’ll need to brush up on your negotiating skills to ease any doubts they may have that you are a responsible buyer. Having stated that, at the very least, you have a better chance convincing a seller to agree than convincing a bank to agree.
Last but not the least, since every seller finance deal is unique, it’s important for both the buyer and the seller to have good legal representation as they work through the terms of their contract, and the last time I checked you really can’t buy a Groupon deal for good solicitors in the UK.
I feel that seller finance is a viable option if you are unable to qualify for a bank loan. Banks have very strict requirements and being self-employed is usually a red flag to them. So if you are having difficulty securing bank finance, having another option to finance a property can be helpful.
Of course, whenever you try something new, it’s always important to do your homework and learn as much as you can to avoid any problems along the way.