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Maximize Your Property Earnings: “Upgrading to Bank Status”

A Quick Intro On Selling

Selling a property can be a daunting task for many people, but it doesn’t have to be. Real estate is a powerful financial tool that can bring great benefits not only to you, but also to your family, community, and even future generations. While the process may seem overwhelming, it doesn’t have to be. With the right knowledge and approach, you can easily navigate the real estate market and unlock the full potential of your property. Remember that learning about the advantages of selling your property is essential and it can be rewarding, but it doesn’t have to be hard. With the right guidance, you can make the process stress-free and successful.

Unlock Your Property’s Maximum Potential: Expert Strategies for Selling in PA

List with a top-performing real estate agent: An experienced agent will give your property maximum visibility and help you achieve the best value for your home.
Utilize online resources: Websites such as Zillow, Redfin and Realtor.com are popular platforms for buyers to search for homes. Utilizing these resources will increase your property’s visibility and reach a large audience of potential buyers.
Upgrade to bank status: This strategy can be especially beneficial if your property is paid off (nearly 40% in the US are), but can also be a viable option even if it isn’t. It provides an opportunity to maximize your property’s earning potential. (What this article is about)

Upgrading to Bank Status

If you’re looking to get the most out of your property sale and take advantage of tax benefits, consider upgrading to bank status or owner financing. This option is particularly suitable if your property is paid off and you don’t need a large sum of cash right away. The benefits of owner financing include:

The power of payments: regular payments can add up over time, potentially earning you more than a one-time lump sum.
Lower tax over a longer period of time: spreading out the income over several years can reduce your overall tax burden.
The potential for compound interest: interest can accrue on the payments, potentially earning you even more money.

Most real estate attorneys are familiar with the process of owner financing and can help protect your interests as the seller. To complete an owner financing sale, you will need:

A promissory note: this document outlines the payments and interest rate.
A mortgage: this secures the note to the property and makes you the first lien holder, allowing you to foreclose and get your property back if the buyer doesn’t pay.
A deed in lieu (optional): this is not always necessary, but it ensures that you are protected and can quickly get your property back in case of default. It is not valid in all states, but it is valid in Pennsylvania as of 2023.
Unfortunately, you can only sell 3 properties a year this way in Pennsylvania as of 2023.

We’ve used this method to buy over $2,000,000 worth of real estate and it can benefit both parties. We and other experts can guide you through the process in PA.

Common Ways People & Companies Buy

We have real world experience in all 3 different buying methods (there’s actually 23 more). Each method has its own advantages/disadvantages but it really depends on the sellers situation.

Buying With Cash

Buying with cash is a convenient option that can provide a quick closing process. However, it is important to weigh the benefits of buying with cash against the potential financial gains of upgrading to the bank status. While buying with cash may provide a quicker and more convenient option, upgrading to the bank status may offer a higher potential return on investment. The price is usually below market value.

Buying With Financing

When it comes to buying and selling properties, there are several financing options available such as bank financing, private money, and hard money. Each option has its own set of requirements and benefits. While bank financing is the most common way properties are bought and sold, it also requires more underwriting. The price is usually around market value.

You Become the Bank

This method truly allows Owner financing, also known as seller financing, carrying the note, or owner carry, is a method of upgrading from property owner to the bank. This strategy is commonly used and can help you achieve above market value for your property by receiving payments and charging interest. It is achieved by working with a lawyer to draft a promissory note and securing it with a mortgage. This creates a paper asset, which is often more attractive to banks and is secured against the property.

More on Benefits

The power of payments: refers to the potential for regular payments to add up over time, potentially earning more than a one-time lump sum. This is often the case when it comes to the sale of a property, particularly when using owner financing or carrying the note.
When a property is sold using owner financing or carrying the note, the seller (the lender) receives regular payments from the buyer (the borrower) over a period of time, usually several years. This can be an attractive option for sellers, as it allows them to receive a steady stream of income over time, rather than a one-time lump sum.
The power of payments also comes from the interest that the buyer pays on top of the principal amount. This interest can add up over time and increase the total amount the seller receives. Additionally, if the property value increases over time, the seller can potentially earn more than if they had sold the property for a lump sum.
Lower tax over a longer period of time:
When you spread out the income over a longer period of time, your overall tax burden can be reduced. This is known as “tax averaging”.
When you sell a property for a lump sum, the entire amount is subject to income tax in the year that you receive it. Depending on your tax bracket, this could result in a significant portion of the sale proceeds being paid to the government in taxes.
On the other hand, when you receive the proceeds of a property sale over a period of time, the income is spread out over multiple tax years. This can result in lower overall taxes, as the income will be taxed at the rate of each year, rather than all at once. In many cases, the tax rate in the earlier years may be lower than in the later years, which can lead to a lower overall tax burden.
It’s important to keep in mind that this method is not a way to avoid paying taxes, but rather a way to spread out the income over time and reduce your overall tax burden. It’s also important to consult with a tax professional to understand the tax implications of this method and ensure you are in compliance with tax laws.
The potential for compound interest:
The potential for compound interest refers to the ability for interest to accrue on the payments, potentially earning you even more money. This is a key benefit of using owner financing or carrying the note as a way to sell your property.
When you receive regular payments from a buyer, the interest on those payments can accrue and compound over time. This means that the interest earned on the payments can itself earn interest, resulting in a larger overall return for the seller.
For example, if a buyer pays $1,000 per month on a 5-year loan at an interest rate of 5%, the seller would earn $30,000 in interest over the life of the loan. However, if the interest accrues and compounds annually, the seller would earn $31,628 over the life of the loan. This is an additional $1,628 earned due to the compound interest.
It’s important to note that the potential for compound interest will vary based on the interest rate and the length of the loan. It’s also important to consult with a financial professional to understand the potential financial benefits and risks associated with this metho

More on Legal Requirements

A promissory note:
A promissory note is a legal document that outlines the terms of a loan or debt, including the amount borrowed, the interest rate, and the schedule for repayment. It is a binding agreement between the borrower and the lender, and it typically includes details such as the date of the loan, the amount borrowed, the interest rate, the repayment schedule, and the rights and responsibilities of both the borrower and the lender.
Promissory notes can be used in a variety of situations, including personal loans, business loans, and real estate transactions. In real estate, a promissory note is commonly used in owner financing, where the seller of a property acts as the lender, and the buyer pays the seller directly over time. In this case, the promissory note outlines the terms of the loan and serves as the legal agreement between the parties.
It’s important to keep in mind that promissory notes can be secured or unsecured. A secured promissory note is backed by a collateral, such as property, and allows the lender to foreclose on the collateral if the borrower defaults on the loan. An unsecured promissory note is not backed by collateral and in case of default the lender can only use legal action to recover the debt.
A mortgage:
A mortgage is a legal document that secures a loan used to purchase real property (such as a home or a piece of land) by giving the lender an interest in the property as collateral. The borrower (also known as the mortgagor) is required to make regular payments to the lender (also known as the mortgagee) until the loan is paid off.
When a mortgage is taken out, it is recorded in the public land records, and it becomes a lien on the property. A lien is a legal claim on a property that gives the lender the right to take possession of the property if the borrower defaults on the loan. The first lien holder is the lender who has the first right to foreclose on the property in case of default.
In the context of owner financing, a mortgage is used to secure the promissory note to the property. It ensures that the seller (the first lien holder) has the right to foreclose on the property if the buyer defaults on the loan. This allows the seller to take possession of the property and recover the outstanding debt. A mortgage also allows the seller to take legal action if the buyer doesn’t pay and can provide a legal framework to resolve disputes if they arise.
A deed in lieu (optional):
A deed in lieu of foreclosure is a legal document that allows a borrower to transfer ownership of a property back to the lender as a way to avoid foreclosure. This is an agreement between the borrower and the lender, in which the borrower voluntarily transfers ownership of the property to the lender in exchange for the lender releasing the borrower from any further obligation to pay on the mortgage.
When a borrower signs a deed in lieu of foreclosure, they are giving up their rights to the property and the lender takes possession of it. The lender can then sell the property to recover the outstanding debt.
A deed in lieu of foreclosure is an alternative to foreclosure, which is a legal process where the lender takes possession of a property after the borrower defaults on the mortgage. It is an option for borrowers who can no longer afford to make their mortgage payments and want to avoid the time, expense and damage to their credit that foreclosure can cause.
It’s important to keep in mind that not all states allow for deeds in lieu of foreclosure, laws and regulations vary from state to state. In Pennsylvania as of 2023, it is valid and can be used as an option to avoid foreclosure.
It’s important to consult with a legal professional to understand the laws and regulations of your state before proceeding with a deed in lieu of foreclosure.