Question about owner financing

6 Replies

Hello all! I'm a new member from Orlando, FL, looking to invest in my first income producing property. I have an opportunity I'd like some suggestions about. A co-worker is being relocated to TX and wants to sell his brand new home. He approached me since he knows im looking to invest. His mortgage(including taxes/inurance) is $1000 a month, and rent in his area is around $1300-$1400 a month. I can not get approved for a loan at this time, so I want to approach him with an offer for him to keep the mortgage in his name and do an owner financing. My questions is, can this be done so its a win win for both of us, and how would the terms of the contract be? Thanks in advance!

It is only a win-win if he needs to get rid of the house quickly and can't sell it quick enough.  If he can sell the house on the market, that is his best option because the debt won't be on his credit report any longer.

If the value of the house is lower than what he owes on it, that might also be a situation where it would benefit him.

Do consider that as a rental, this house is, at best, cash flow break even.  You have many, many expenses beyond taxes and insurance. If you choose to use a property manager, its almost certainly cash flow negative.

Its certainly a win for you, but not for him.  Is he desperate to be rid of it?  Does he want to buy another house in TX?  By selling it to you "subject to" the existing loan, he will limit his ability to get another loan.  And he's taking on a lot of risk because any bad action by you will affect him.  If they do call the loan, and you cannot pay it off or refinance, he will have a foreclosure on his credit record.

Consider a sandwich lease option, with the limited info we have this seems to be an option.

Thank you for helping this newbee out. I'm guessing that the lender would have to approve this and it seems a long shot. He is not wanting to buy another home for a couple of years and is willing to work with me. Still working out the details. I will manage the property myself to avoid negative cash-flow.

Originally posted by @Jon Holdman :

Do consider that as a rental, this house is, at best, cash flow break even.  You have many, many expenses beyond taxes and insurance. If you choose to use a property manager, its almost certainly cash flow negative.

Its certainly a win for you, but not for him.  Is he desperate to be rid of it?  Does he want to buy another house in TX?  By selling it to you "subject to" the existing loan, he will limit his ability to get another loan.  And he's taking on a lot of risk because any bad action by you will affect him.  If they do call the loan, and you cannot pay it off or refinance, he will have a foreclosure on his credit record.

It negative cash flows, and gets the seller stuck with the loan. How is it a win for anyone?

no cash flow = no deal. 

Originally posted by @Jon Holdman :

Do consider that as a rental, this house is, at best, cash flow break even.  You have many, many expenses beyond taxes and insurance. If you choose to use a property manager, its almost certainly cash flow negative.

Its certainly a win for you, but not for him.  Is he desperate to be rid of it?  Does he want to buy another house in TX?  By selling it to you "subject to" the existing loan, he will limit his ability to get another loan.  And he's taking on a lot of risk because any bad action by you will affect him.  If they do call the loan, and you cannot pay it off or refinance, he will have a foreclosure on his credit record.

It negative cash flows, and gets the seller stuck with the loan. How is it a win for anyone?

no cash flow = no deal. 

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