I'm torn. Rentals or Owner-financing?

[Tim Ball]

I am sure there are many pros and cons to both being a landlord and doing owner finance deals.  Should I do them both?  What are the advantages/disadvantages of one strategy over the other strategy? Here are my thoughts.  Tell me what you think.

Landlord Pros:  cash flow, passive income, building your networth, building for retirement, you don't lose any equity

Landlord Cons: dealing with tenants, breakdowns, repairs, evictions and vacancy

Owner-finance Pros: cash flow, don't have to deal with tenants and repairs

Owner-finance Cons: lose equity, possible foreclosures, possibly need to fix up the house more than you anticipated because former owner did not take care of the place at all.

What else am I missing in these lists?  Trying to find out which is the best strategy or should I implement both? I would love to your thoughts.  Thank you.

[Arlan Potter]

I have acquaintances that like owner financing. I have done a couple, worked well when I got a large down payment. Not good when took small down payments. I now do not want to owner finance, I want to keep what I have. You just have to determine your end game. If it's to keep buying and selling, then you can get a premium for your sales. 

[Matt R.]

I had a property where the renter wanted to buy it so I considered going this route. It makes a lot of sense if I was planning on holding for many years but I wanted to be able to cash out at anytime so I did not fully pursue that idea. I imagine I could have sold the note but I am not that sophisticated with notes and such. 

The landlord route is more hassle but you have more options down the road. OTH not having the LL headaches but still getting the cash flow sees very attractive to me. There are some legal concerns with owner financing and some hassles could pop up still so make sure you have the proper attorney and the rest in place. There were numerous loop holes for that end buyer. I don't think most doing this now are not totally aware of those new loop holes.

I do like the business model still and might do it one day. The make or break part was getting all the cash out at once to use for something else. So I would think if you know you don't need the total worth at once...go for it. 

[Brian Gibbons]

I would rather have paper (notes) than tenants

I can't get sued by paper 

I can be sued by tenants and others

[Elizabeth Colegrove]

Everyone has their own opinion. I like landlording because I get the appreciation, someone else paying off my mortgage, and the cash flow! Yes i have to deal with "people" but i enjoy it most of the time. I also invest in higher end areas so my people, are minimal work on a normal basis. 

[Jesse T.]

Owner financing can be an exit strategy, I don't think it is a great idea to use it as THE exit strategy.  If you are too profitable with owner financing, you are at risk of liability as a predatory lender.  If you don't profit much, you have a huge risk of any foreclosure wiping out your profits.

I think private lending to investors is more likely to accomplish your goals than seller financing of owner-occupied properties.

[John Hixon]

@Tim Ball

 I have rental properties and they are working out well.  But, I also have a PM so I do not deal with the late night phone calls and rent collection issues.  

The one major issue with owner financing is the new Dodd Frank law.  If not done properly there can be some major penalties.  

[Brian Gibbons]

@John Hixon

Nice to see you here!

It's important to know the Dodd Frank and seller financing only has to do with owner occupants so if you're talking to a landlord wants to sell on terms like owner financing there  is no Dodd Frank at all, only owner occupants

It would help the seller the landlord if you're buying on terms for you to notarize a statement saying that you will never live in the property and you're using it for investment rental purposes

[Tim Ball]

Great stuff everyone.  Very informative.  Thank you.