Owner Financing Question

Yes, its possible. I wouldn't, as a seller, do a subject to unless I was really desperate and didn't care about my credit. There are several safer ways.

A lease/option gives you the most control. You lease the property to the tenant/buyer and at the same time, sell them an option to purchase the property. The option fee, typically 3% of the purchase price, but whatever you negotiate, applies toward the purchase. Its limited term, any from a year to several years. Before the option expires, they need to actually complete the purchase. You may want to apply a small portion of the rent to the purchase price, too. If they don't pay, you evict under the lease.

A land contract gives up a bit more control. Here you retain title (i.e., they do not get a deed), but you have a contract to give them the deed after a certain number of payments are made. There may be a balloon payment, which would mean they need to refinance at that time to pay off the balloon. This is similar to how car loans work. The buyer gets possession, but the lender holds the title until the contract is satisfied.

You can also do a wrap, aka an AITD (all inclusive trust deed). You create a new promissary note and deed of trust (or mortgage, depending on local custom). They get a deed to the property and give you the deed of trust. The make payments to you on the new note, you make payments to the existing lender on the old note.

A subject to gives up almost all control. You give the buyers a deed. They take over the payments on your loan. You have no right to foreclose, like you do with the above two options, so if they stop paying, your options are limited. They will wreck your credit and may put a foreclosure on your record. You would have to file suit to get them out.

Edited: 06/26/2010 at 09:27AM

Jon Holdman, Flying Phoenix LLC

Cary Donham

Real Estate Investor · Dallas, Texas

64 posts
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Icon_minipost Aug 23 '09, 01:42 AM

One thing to keep in mind about the wrap method that Jon mentioned is how your state works or the time frame for foreclosing on the note if the borrower doesn't pay. For example in TX all I have to do is file the NOD 21 days prior to the foreclosure. In other states you have to wait 3 to 9 months before you can foreclose.

Check with a real esate attorney in your area before hand to make sure you are convered in the event you need to foreclose on the property.

I did an owner finance about 2 years ago but structured it as a lease option that would convert to owner financing after they performed. They put 16K down on the property but walked away from it after the first 2 payments! So all I had to do was evict (2 week process in TX) versus having to foreclose.

Edited: 06/26/2010 at 09:27AM

Tony Severino

Real Estate Coach · Highland, Indiana

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Icon_minipost Aug 26 '09, 04:31 AM

Grand

I owner finance everything I own, and there are several strategies to do so.

A subject to transaction that someone referred to is not a owner financing technique, it is more of a give away the deed and walk away transaction.

I have two techniques that we use regularly to owner finance the property even if they have underlying mortgages.

#1 Lease with the Option to Buy with this strategy I lease the property and give the person an opportunity to buy it at a set price within a certain time frame, usually 1-3 years. There is a non refundable Option Deposit they put down which is about 3-5% of the purchase price.

#2 Land Contract, Contract For Deed, Agreement For Deed, all the same thing. This is another technique, but the big difference, for IRS purposes you have sold the property, however you still own the deed and the house. This is known as an installment sale. In essence you are now the bank to the buyer.

Hope that helps

Tony

Edited: 06/26/2010 at 09:29AM