Seller financing for investors

In a seller-financed deal, the person selling the property acts as the lender: instead of you getting a bank mortgage and handing them cash, you make a down payment and then pay the seller directly over time, with interest, under a promissory note. It's a niche tool, but a genuinely useful one — it can close deals banks won't touch, on terms no bank would offer, and it comes up most often with sellers who own their property free and clear and care more about steady income (and tax deferral) than a lump sum.

How the structure works

• You and the seller agree on price, down payment, interest rate, term, and payment schedule — all negotiable, none dictated by a bank.
• You sign a promissory note (your promise to pay) secured by a mortgage or deed of trust on the property, recorded just like a bank loan.
• You typically take title and get the deed at closing; the seller holds a lien until you pay off the note.
• You make monthly payments to the seller. Many seller notes are structured with a balloon — lower payments for a few years, then the full remaining balance due, forcing a refinance or sale by a set date.

Why a seller would ever agree

It seems strange until you see the seller's side. An owner of a paid-off rental who sells for cash faces a large capital gains and depreciation-recapture bill all at once, then has to find somewhere to reinvest the proceeds. Seller financing lets them spread the gain over years (an installment sale, which can lower the tax hit), earn a solid interest rate on the balance — often better than they'd get from bonds — and turn a management headache into a mailbox check without becoming a landlord again. For the right seller, carrying the note is a better deal than cashing out.

What's negotiable (almost everything)

• Down payment: often lower than a bank's 20-25%, but sellers usually want enough that you have real skin in the game.
• Interest rate: set by agreement — sometimes below market, sometimes above, depending on who needs the deal more.
• Term and amortization: the payment can be amortized over 20-30 years even if the balloon is due in 5, keeping payments low.
• Balloon timing: the single most important term to get right — it's your hard deadline to refinance or sell.
• Prepayment: whether you can pay off early without penalty, which matters if you plan to refinance quickly.

When to reach for it

Seller financing shines in specific situations: a free-and-clear property, a motivated or tax-sensitive seller, a buyer who can't easily get conventional financing, or a deal where the flexibility of custom terms creates value banks can't. It's not a mass-market strategy — most sellers want their cash and most listings won't entertain it. But knowing it exists means that when you meet a tired landlord with a paid-off property, you have a tool that can serve both of you better than a bank ever could. It's worth planting the question in any conversation with a long-time owner: 'Would you consider carrying the financing?'

The bottom line

Seller financing turns the seller into your bank, replacing rigid bank underwriting with negotiated terms — lower down payments, custom rates, and creative structures that can make a deal work for both sides. It fits best with free-and-clear properties and tax-sensitive sellers who value steady income over a lump sum. Protect yourself with title insurance, an attorney-drafted note, and a clear-eyed plan for the balloon deadline. Used deliberately, it's one of the most flexible financing tools in real estate; used carelessly, it's a lawsuit or a lost property. As with everything tax-adjacent here, run the installment-sale details past a CPA before you sign.