This may sound scary to the Seller who has seen bank foreclosures and short sales across the country. Why would Sellers want to put themselves in this position? Let’s take a fresh look at why holding a mortgage can be one of the few tangible and solid investments during these times. For those who are in a position to offer this as a selling tool, a buyer’s market can bring unparalleled opportunities, when properly advised.
Although real estate values have stabilized in our local market over the past two years, the Highlands-Cashiers area has held better in value and with fewer foreclosures than most parts of the country. I believe this is because our typical property owner does not depend entirely on the economy for survival. The majority of landholders are second homeowners and/or investors. Many have paid cash for their properties. In fact, a good portion of this small, yet significant segment of society depend on earning interest to make a living.
The Federal Reserve is still keeping interest rates at an all-time low in an attempt to boost the economy. Their theory is that lower rates will encourage people to make investments in real estate, small businesses and consumer purchases. This theory remains ineffective because banks are now being governed with such conservative lending practices, it may be difficult for consumers to qualify for loans. Interesting enough, these difficulties do not just extend to the average borrower. The well-to-do who hold large portfolios of cash and non-liquid assets may have trouble getting financing because many are not showing consistent annual income (a large key today in qualifying for a loan). This is due in part because they are earning very little interest. Thus, both buyers and sellers are suffering, even though this is one of the best times in history to purchase property at exceptional values.
Certificates of deposit (CD’s) are still the most secure investment, but they are currently earning an average interest rate of 1+%. If you happen to own property free and clear of mortgages, you could sell and easily earn a 3 to 4.5% return by holding owner financing. This could off-set selling your property at a lower value than previously expected, plus increase your annual income substantially. Mortgages can be relatively short term investments. It is not uncommon for an owner financed mortgage to have interest only monthly payments with a scheduled balloon payoff in three to five years. Again, the typical Highlands-Cashiers buyer is affluent and more often than not they pay cash for real estate. However, in these times they may desire a mortgage until they can sell an existing property or they may be awaiting a scheduled pay-off from another investment.
Mortgage loans have been the backbone of the banking industry since the foundation of our country. They have only recently become problematic due to poor lending practices prior to the recession. In the remote case that foreclosure becomes necessary, seller financing puts one in a position to sell the property again at the market value at that time, with the possibility of receiving even higher profits. Upon selling the property again, the seller could cash-out, reinvest, do a 1031 exchange or hold yet another mortgage on the property at the going interest rate at that time.
Let’s consider a fresh prospective on a conservative, yet traditionally profitable venture. Holding a mortgage is a sensible and practical approach to investment in today’s economy. A professional agent with experience in owner financing and knowledge of the local real estate market will be able to assist you and direct you to those other professionals who have the best knowledge regarding owner financing.
Lynn Kimball has over 42 years of real estate experience, with 31 years serving the Highlands Cashiers area. She has gained Emeritus Status with the National Association of Realtors and previously served as a Director and Vice President for the Highlands Cashiers Board of Realtors. Whether you are interested in searching properties or comprehensive information about our area, you are invited to visit her user friendly website at www.signatureproperties-nc.com. Berkshire Hathaway HomeServices Meadows Mountain Realty has three locations, at 41 Church Street in the Old Edwards Inn complex, at 488 Main Street or visit Lynn at her 2334 Cashiers Road location across from Highlands Falls Country Club. Lynn Kimball may be reached at 828-421-8193 or by email at Lynn@MeadowsMtnRealty.com
Contributed by Lynn Kimball
Berkshire Hathaway HomeServices
Meadows Mountain Realty