Seller Financing

Seller financing is an arrangement where the seller lends the buyer part or all of the purchase price, taking payments over time instead of cash at closing. Sellers who offer it often ask a higher price. That raises the gross rent multiplier, even when the overall deal may be better for the buyer.

A $530,000 price with seller financing is a GRM of 11.0 on $48,000 of rent, against 10.4 at $500,000 with a bank loan. If the seller's loan has a lower rate, less down or no qualifying, the payment and cash required can still be lower. GRM alone would rank the seller-financed deal worse.

Compare financed deals on cash flow and cash on cash return, where the loan terms show up. Keep the GRM in view as a check on price. The favorable terms usually last only a few years, and a high multiplier matters again when the loan comes due and must be refinanced at market terms.

Further reading: Seller Financing on Wikipedia.