I've been wanting to get into REI for sometime and I've came up on a possible duplex but it's owner financed. What are y'alls opinions on a duplex for a beginning property and also on having it owner financed?
Depends on the terms but there is no problem with that.
@Aaron K. Down payment is reasonable but the interest is really high and it’s a 30 year.
30 year owner financing is rare and a good thing as long as there is no penalty for you refinancing out of it or paying it off early. What is the interest rate? @Joshua Villafranco
@Aaron K. 12%
Owner financing can be a great thing especially if you can't qualify for financing on your own or if you don't have much cash for a big down payment. With that being said it all depends on the terms that you and the seller are able to agree on. Also make sure you get some good comps to really nail down the value of the duplex. It's not uncommon for sellers to offer owner financing when they overprice their property and know it won't appraise.
@Joshua Villafranco 12% would be way too much for me, but it depends on the area and what the property would return, regardless if you bought it that would be something you'd want to refinance out of ASAP
@Brian Garrett Thanks for the advice!
@Aaron K. What do you mean penalty for refinancing or paying off early? Yeah 12% is pretty high for my area.
@Joshua Villafranco some loans will have a fee if you pay it off faster than 30 years (which would happen if you refinanced)
I don't see anything wrong with owner financing if it is the right deal, but I would echo what others have said. Make sure the terms/numbers make sense. 12% sounds extremely high and my guess would be that since it is a duplex, you can get conventional financing from lenders that will offer more attractive terms.
If the seller will only do seller financing because they are looking for a quick exit, it's possible you can get a discount relative to the market for meeting them on their terms. Refinancing out of that 12% should be easy if it is a good deal.
We have one property in our portfolio that is seller-financed and it was really mostly a benefit to us because it is 5+ units and thus would not have qualified for conventional financing. Our interest rate is very reasonable, so we have not refinanced and have had no real issues working with the seller. We mail him a check every month and that's about it.
A hidden benefit is that they will sometimes remain more interested in the property because they are the lender. He is extremely accessible with regard to questions about the property and its operations.
@Renard Miller Thank you for the response. The property could use some updating throughout, mostly cosmetic and it’s not central H/A.
@Joshua Villafranco I would say go for it ! I wouldn’t worry too much about the interest rate if still cash flows . 30 yr us rate as someone else mentioned . I purchased a single family with owner financing and the rate is very high 10% but the property still cash flows great and I will most likely sell it as part of a package or sell it for a profit at some point .
@Kata Walters Thanks for the positive advice !
@Joshua Villafranco Echoing some points above as I've done a number of owner finance deals as a buyer. Make sure with a low downpayment and 12% interest it truly cash flows (read up on the 50% rule). Otherwise you're losing money every month and there's no point in doing the deal, especially with closing costs, getting it rent ready etc.
The other point - extremely important. Get it appraised. If you need to refi out in a year or two (which you should at 12% int), if you paid too much to start, you'll have to bring money to the table to refi or sell. Otherwise you can't refi and you're locked into a poor deal.
If the numbers work, then certainly it's a great opportunity. I bought 5 in a row once this way.
@Joshua Villafranco Go for it if the numbers work.
@Joshua Villafranco is there anything in the contract stopping you from refinancing after a few years?
@Elizabeth Miller No, there’s no fee or penalty for paying off early.
Hey Renard Miller I’m in the east bay I also have a question. I’m new to real estate investing but I just came up on a deal for a SIngle family home for $350,000 the owner wants to sell because he was renovating the home but doesn’t have any time or money to finish. Houses Around the area finished are going for $375,000-$417,000. I think someone can offer below $350,000 because the rest of the renovation cost.The one thing stopping me is the knowledge and experience.I have a construction background and a father who’s a contractor,so we can do the work.so if your interested would you have time to take a look ? (I have pictures of home) or even mentor me ?
@Joshua Villafranco are you planning to live there? If so I'd go with an FHA loan. Don't be afraid to counter offer the sellers terms. Offer 5% interest and go from there. Make sure you hire a lawyer and have everything looked over before you sign.
@Jake Diamond No I’m not planning on living there, it’s just going to be a rental for the time being. Yeah I’m going to get a lawyer definitely.
12% is high but it can still make a great return and worthy investment if other numbers are good
That’s fine if the numbers work.
I’m considering a similar deal now, although admittedly interest isn’t as high.
Run your numbers first, be conservative at it.
If there isn’t a penalty for prepayment and it will cash flow acceptably at your rate definitely go for it and refinance when ready.
Main thing that would keep me from doing it would be very high down payment.