It’s time to pat your back if you have got yourself a home. Yup, believe it or not, you are about to successfully create a strong source of passive income with it. You are in a very commanding financial position and it’s time to diversify your streams of income.
You guessed it right, I am going to talk about holding a mortgage and see how it can help you as a seller even in the toughest of economies. So, let’s strike while the iron is hot and get started!
What Does Holding a Mortgage Mean?
Holding a mortgage essentially means the owner is coming to an agreement to extend credit to someone interested in buying your real estate property. In this case, we are talking about extending credit to buyers looking to purchase your home.
The mortgage agreement has details like interest rates, loan period, balloon payments due, prepayment rules, penalties, fees for late payments, default procedures, and other important information included for the promissory note. Many new and experienced investors will ask for full seller financing, but don’t fear. If you negotiate properly sometimes all they really need is for you to carry 20-25% of the cost of their new mortgage.
Let’s discuss the most fun part of it all – the benefits one enjoys by holding mortgages for the long-term.
What are the Benefits of Holding a Mortgage?
Here are the benefits of holding a mortgage to create long-term passive income in 2020.
1. Complete Control on Monthly Income
We are talking about higher interest rates here. You can easily get 8-12% interest on your house and earn a solid monthly income from it. The sellers usually give away the keys after the down payment has been made and then receive monthly principal and interest from the buyer. What you need to note here is the freedom of determining the terms of the loan, the interest rates, and also the payment terms. Thus, holding a mortgage really becomes a passive income you can have complete control over.
2. Larger Pool of Buyers
Believe me, you don’t want to involve the banks here. The reasons are quite simple. First, you don’t get the kind of interest you are looking for. Banks need to make their own commissions and thus you will get a lower interest rate when the banks are involved in the deal. Second, the time banks take to close the deal is ridiculously high. We are talking months here. Therefore, if you are not in a rush to receive all or some of your profits upfront it is highly recommended that you offer owner financing and close the deal more quickly.
3. Higher Profit on Sale
There are sellers who like to earn through selling the house at a higher price than what they bought the house for. The house might require repairs that you need to do to get the sale done. This is because buyers tend to cancel the deal if the repairs are not made or the cost is not negotiated well. No matter what the situation is, you will be in control of making the sale happen because you can typically charge MORE for the financing option OR not have to do certain renovations.
4. Rights to Property in Case of Non-Payment
As the note holder, you can take the property back if the buyer does not comply with the rules mentioned in the agreement. This mostly happens when the buyer defaults on payments or decides to walk away from the property. The good thing is that the owner gets to keep the down payment as well as any renovations and repairs made to the property during the borrowers time of ownership
There you have it. We have discussed just a few ways to start making more truly passive income through holding a mortgage and in some cases live completely off it. However, I highly recommend consulting an attorney for all the legal nitty gritty in this business. I hope this piece of content brought great value to you. If you have questions, feel free to put them down in the comments section below. I love to hear from you!