The seller becomes the lender. Think of a house being sold for $400,000. You can only get financing for $350,000. You ask the seller to finance the extra $50,000 for you based on terms you and the seller agree on. 

Keep in mind that this type of lending can be risky. Although there are many advantages for the seller and buyer:

The seller:

-it could be a difficult property to sell

-the seller gets the asking price that they want

-keeps your capital gains tax lower since you haven't sold the property in one transaction

The buyer:

-allows the buyer to add an additional property to their portfolio to increase cash flow

-get to leverage more money to increase their cash on cash return

​

​

​