Owner finance question

4 Replies

So was wondering If i could BRRRR a owner financed home? Or is that dependent on the written agreement? I have a home that needs a lot of repairs but is willing to owner finance. Also found a local real estate entrepreneur who will finance the rehab. But my plan is to brrrr it tho am I wrong?

Originally posted by @Jonathan Toruno :

So was wondering If i could BRRRR a owner financed home? Or is that dependent on the written agreement? I have a home that needs a lot of repairs but is willing to owner finance. Also found a local real estate entrepreneur who will finance the rehab. But my plan is to brrrr it tho am I wrong?

That should work. Make sure you have a written purchase and sale agreement, have a Title report, Close through Escrow with a mortgage & note and warranty deed and homeowner's insurance. You may want an inspection so you know what you are getting into. Make up a list of costs for each room of the house so you can put together a budget. Check the roof, plumbing, electrical, heating, AC, pool, kitchen upgrades and bathroom upgrades because these tend to be the biggest expenses. You have to determine how you will value the property. When you go to refinance the bank will do an appraisal so make sure you aren't paying more than what the bank will refinance for. Some banks require seasoning (owning the property for 6 months or whatever) before they will refinance so ask the bank what their requirements are. I'd talk to a mortgage broker and find out what their lenders requirements are too just in case you go that route. Sounds like a good plan to me.

Although this is not a comprehensive list, it will get you started.

@Jonathan Toruno great idea when the numbers work! I would add that you communicate to the owner doing the financing your intent so you are on the same page for 2 reasons:

How long does the owner want to carry the note?

What happens if you can't refinance in the expected time frame?

It depends on the seller financing you have negotiated and the deal you have worked out with your rehab financer. Keep in mind, all seller financing is not the same. I will give you an example. I just bought two houses from the same seller. One the seller owned free and clear. I bought the house on a straight installment sale. I gave the seller three options. He chose the middle offer. I basically I came up with a price I can pay, divided it by 180 months and said here is the monthly payment and total. No interest loan for 15 years. Every payment goes toward paying down the loan balance. The house is in good shape with a 5 year tenant. In this case, I don't need to BRRRR. The loan payment was derived where I need it to be so I can have a cash flowing rental and getting full equity with every payment I make. The second house, I purchased "subject to" the seller's existing financing because he had a loan on the property. I didn't like the loan long term because I knew I had options to do better than 6.5%. As a result, I gave the seller 3 options. He chose the middle option again. I take the property subject to for 8 months vs many years, but I take a significant discount on the purchase price. I will refinance the loan at 6 months and slap 30 year fixed rate financing at ~4.5%, freeing up ~$200 month. Not to mention, the tenant is about ~$200 under market rents. There are other misc details I didn't go into but you get the point hopefully. One seller financing deal has no real urgency or benefit to BRRRR, the other has a need to BRRRR. It just depends :)

This seems ideal...the owner can hold the note until the property is repaired/rented, then you can refinance into a traditional loan. It might be worth it to meet with a loan officer at a bank and see what type of "verification of mortgage" paperwork they'll need from you/the note holder when it comes time to refinance. Then you'll be ahead of the game!