How To - Owner Financing

Question

I have always consideerd owner financing and consistently have clients call asking if I have any; how does it work. I know that many scenarios exist but which method is preferred?

What type of ROI should one expect? 
What type(s) of financing should you have lined up?
Do you always use balloon payoffs?
Etc, etc, etc

Please fill me in, new niche underway and I'm low on the learning curve.

Thanks

Chris T. · Answer

What I've done in the past is with private money.
            
            I charge 11.25% on the note.
            The buyer carries the insurance (1st yr paid in full up front).  They also pay the tax.  If they don't keep up with it then you take it back.  Escrow comes in handy here.
            There are no closing costs if you close on it yourself, (when you sell), and no need for title insurance because you should have gotten that when you bought it.  If they want title insurance, to close at a title company, or to use an attorney  then the buyer will pay for all of it. 
            
            I don't do repairs on the house at all.  What you are selling is the financing, not paint and carpet which will be ruined and you may have to replace again if you have to foreclose.  If they are willing to put 10% down and make the house look the way they want it then chances are they are going to have a lot of pride and won't easily let it go.  Keep in mind, I only buy "livable" property.  These houses are exactly how you'd imagine a low-income rental property to look like.  I just clean them and put a sign in the yard.
            
            1 out of 5 will be foreclosed on.  Or, you can just have them deed it back to you.  
            
            If you do any rehab to it then mark it up 50% and add it to the sell price.
            
            I bought close to 100 houses and only rehabbed one at the buyer's request.
            
            Avg. 45 days on the market.

Charles Whitaker · Answer

Insight anyone

Charles Whitaker · Answer

Yes, I am. However, I would not leave it that way for owner financing; interest rates are high these days. :mrgreen: 
Do you use conventional financing or lines of credit?

I suppose the typical deal goes down as follows:
Chris, let me know if I have deviated from your outline

ARV = 100K
Repairs = 5K
Closing costs = 2K
Purchase = 58K (65% minus repairs, minus Closing)
PI Calculated @ 6% = 489

Down payment = 10K
Finance 90K @ 10%(?) = 967.14

Cashflow = 478

Obviously I am missing some things. Taxes, Insurance, wrong rates? Please share the knowledge

Chris T. · Answer

Are you using HML Charles?

Nicholas . · Answer

Let your buyer name the down payment and the monthly payment. Never name the price first.

You, of course, will have some minimums in your head. I'd get at least 10% down, but if they say they can come up with 20%, 20% is the newly required minimum down payment. I would get a payment of at least 20% higher than your current PITI, but again, if they offer higher than that, you take that.

Ron LeGrand's owner financing boot camp is incredibly informative.

Charles Whitaker · Answer

Dan, I would really like to know about all the strategies. I just don't know how they are organized and what types of financing is used. A lease option is where someone leases from you with the option to buy down the road. Which party controls such items as PITI, maintenance, etc. What % or cash flow should you receive?

Land contract being similar but employing either a wrap or straight sale. Likewise, who controls what? Also, what type of financing is best suited if a wrap is involved?

Once I figure out some of these variables I'll be able to judge which strategy I need to focus on.

Thanks for your help

Chris T. · Answer

Hey Charles,

I'll compile all of my material and post it here within the next couple of days.

But for now,

I buy at 65% of FMV minus clean up and closing costs
I don't do anything to the house but clean it
No balloon payments
10-15 yrs
10% down
min $500 earnest money