There are many reasons why seller financing can be beneficial to both the buyer and to the seller:
Some properties are difficult to get institutions to finance. Large tracts of undeveloped land, mobile home lots with single wide mobile homes, and some types of commercial property have this problem. If you have a property that is not eligible for conventional financing, its usually very difficult to sell without seller financing.
Some buyers are not qualified for conventional financing or don't want to have to go through the process of qualifying. Some of these people are good to excellent risks, and by not offering terms, the seller eliminates this pool of potential buyers. With the sub-prime lending problems, look for institutional lenders to over-correct, resulting in a larger pool of buyers who need seller financing.
Seller financing means that the seller earns interest income. When market interest rates are low, the seller can get above market rates on his money by carrying the financing as opposed to cashing out and putting the funds in a CD or savings account. Perhaps the seller prefers an 8% or 9% real estate contract to a 3% or 4% money market or savings account rate. Or perhaps the seller doesn't need a lot of cash now but needs income.
Owner financing offsets high interest rates. When market interest rates are very high (and they will be again someday) -- like 12% or 15% -- many buyers are not able to qualify nor willing to pay those rates. Often the seller can help solve that problem by carrying the contract at a more acceptable rate.
Income tax treatment is favorable for owner financed sales. Some sellers, who understand installment sales and who have a relatively low basis in the property prefer to carry the financing in order to defer the tax consequences over several years.
Quick sales result when properties are owner financed. A higher price can be asked. In addition, the sale is less likely to fall through and is easier because there are fewer 'hoops' to jump through.
Owner financed sales are simpler. Sometimes its easier to 'get to cash' by taking two small steps rather than one large step. In other words, it may be easier to sell on terms, then sell the contract, than to hold out for a cash sale.
These are the more common advantages to offering seller financing.
Are there disadvantages? Absolutely.
The most common concern is performance: Will the buyer make the payments? Getting the title back if the buyer defaults can present problems. If the buyer won't leave the property then regaining possession becomes difficult. Another problem arises if the buyer vacates the property but leaves behind personal property.
Other issues pertain to the condition of the property. Will the occupant maintain it? If they abandon the property, will they "strip it" as they leave? Will they maintain hazard insurance coverage? If they vacate, how can the seller get coverage on a vacant property?
And, of course, there's the possibility of bankruptcy. If a "Notice of Bankruptcy" arrives in the mail, the seller who wishes to regain the property is legally prohibited from taking certain actions.
Seller financing means taking on certain responsibilities and risks which otherwise would be managed by a lending institution. Even though the benefits of seller financing are valuable, the risks must be considered.
Before you make a final decision, however, you may wish to consult with your Realtor, certified public accountant, or attorney. Your circumstances will determine what is appropriate for you, and they often can help you make an informed decision.