Owner Financing/Rent to own

4 Replies

Hello, I am a brand new member to Bigger Pockets and am just starting to figure things out, mainly how to acquire my first rental property. Has anyone used seller financing or rent to own to acquire their first rental property? If so, what did that look like for you? I am trying to avoid using banks. Thanks in advance!

Seller financing and rent-to-own (also known as lease option) almost always fails. Why? Because the buyer has poor financial discipline which is why they can't qualify through a bank.

If you have good financial discipline but just have bad credit due to unfortunate events outside of your control (e.g. medical issues) then my recommendation is to work hard to recover your credit and save up the funds necessary to purchase.

I'm using seller-financing right now to purchase six apartments but it's because the terms are more favorable to me and the seller, not because I can't qualify through a traditional lender.

Thank you for your response. I have great credit and financial discipline. I was looking at the seller financing option/rent to own as opposed to using a bank to purchase my first rental property because this way I don't have to put 20% down. I was thinking I could go this route and have a tenant occupy the property to pay for the financial obligation that I would have to the seller. Is this something that can be done?

Yes, you just need to find motivated sellers who will do this. Sometimes investors will sell with owner financing when they get to the point where they don’t want to manage properties anymore, but they want to delay taxes. There are other situations where it can work too. It can be a great way to get favorable terms — whether you’re talking about paying less interest, using a small (or no) down payment, etc.

Some people will get a seller to agree t owner financing and then they’ll sell the property to someone else with that owner financing. I don’t agree with that, because the owner was putting trust in you — not someone else you later suggest. But other than that one practice, I love owner financing.

Thank you for your response. What is most appealing to me about this is not having to put a lot of my own money in as a down payment. Of course, even if I had a tenant occupying the property, I would still be the one ultimately responsible for the monthly payments to the seller and if I had any vacancy, I still have every intention on satisying that monthly payment to the seller so I still consider myself to be trustworthy in this type of situation.