It works by you hiring an EXPERIENCED realtor or real estate attorney to draw up the financing contract & make sure your rights to retake the property are protected. It blows up in your face if you don't use an attorney/agent who's done a few of these.
You & buyer sign a deed of trust requiring buyer to pay you as if you were a bank. The contract sets forth the terms for financing, what happens in the event of default, insurance, straight or balloon mortage, etc. Run a thorough credit check on buyers! Seller-financing spreads out your capital gains but exposes you to the risk of having to foreclose on the house to get it back. Usually when a buyer requests seller financing, the buyer can't qualify for a standard mortgage. You should charge buyer a higher interest rate than a bank, to cover the increased risk to you of default. After all, you can't absorb a loss like a bank can.
Go look at some amortization tables at the library & you'll see that you maximize your return on investment if you set the mortgage *payment* based on a 30 year term, with a balloon payment of the balance of the mortgage after 15 years. (Your rate of return is *higher* than the stated interest rate for the first 1/2 of the mortgage; lower than the stated rate for the last 1/2.)
Good luck.
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This is not legal advice and you are not my client. Double check everything with your own attorney and your state's laws.