Owner Finance do's and dont's

8 Replies


Im debating selling a house - and if i do it will be with "Owner Financing".

The reason is i have buyers that can take it as is at a decent price for under the minimum bank loan of $50k. It needs about 15k worth of work to be perfected but it is livable as is and the new owners can do this and that every two or three months as they feel fit.

Im using the financial spot im in with three unrented properties:

Property 1 (the one that might be for sale)I had this place for years and have made my money back along with nice profits.

paid for - 15K to rehab $700 potential rent if i were to keep it.

Property 2:
I own and plan on keeping as my home until property 3 is complete - 6K to perfect $8-900 potential rent when that day comes.

Property 3:
I just picked up and want to keep because it will be valued more than the other two when complete:

$11,500 no intrest mortgage at $500 a month. 20-30K to rehab to perfection.

The sale will basicly free me of that property and pay for the purchase of property three along with the rehab work of 2 & 3.

What is your take on owner financing and it's process? How would i determining the best loan terms? What's the process of forclosing on a buyer as oppossed to evicting a tennant.

Alot of it begins with writting out the loan to your buyer the right way from the very beggining. The best practice would be to connect with a mortgage loan originator and they could walk you through what you want to include in your loan terms based on what is comman in your area. Many investors I know try to make there loans look as close to and FHA loan as possible this is way it is more appealing to someone considering buying the note down the road.

You should also decide if you want to hold the note full time or if you want to be cashed out eventually. Your interest rate will dictate that decision. If it is a high interest rate the member would eventually refinance to lower it and if it is low and fixed they may just mantain how they are.

and foreclosure is subjective to your state regulations you should be able to find those on the county clerks webstite easy.

As @Manny Cirino said

Create a note that is sellable down the road.

Use an RMLO in your state.

What is a sellable note...

@Mark Faulkner has a site for note brokers, and here is a good article about creating a sellable note.


@Manny Cirino and @Brian Gibbons

Than you both. Good info in the link Brian.

Just to make sure we are on the same page here with the plan...IF you decide to finance the deal, then your money will come in periodic payments not a lump sum. To me that seems to be at odds with your plan design which calls for you to use the cash from the sale to purchase an alternate property and pay for repairs on the other two.

Based on cash needed criteria alone, I would say Seller Finance (SF) is not really an option here. And to preempt the ideas of making the note and selling the note, bare in mind that is not as easy as it sounds. Many will look at your note, fewer will bid your note and even fewer will offer what you need to liquidate in many cases. That could cause you to have to sit on your note for well over a year or to the extreme indefinitely. That idea does not even start to take into account any underwriting criteria that may or may not need to be present to warrant a price close to PAR on the note.

In addition to that idea, it sounds like rents will earn more than interest on this particular property. The rental income, $700, would make a $50k loan on a 30 year amortization cost around 18%. Well past usury in most cases and likely too high to really attract a buyer. At $50k with 7.5% interest on a 30 year you are looking at about $350 for payment. So economically, if you are stuck in the asset for a period of time for one reason or the other, it would seem that more profitable way to hold the asset is to realize the rents in full. You will get the same $350 per month either way.

I would be more inclined to say, "yea, good idea offer SF" if your circumstances were different. Whereas, you didn't need the cash infusion for the other assets and you were comfortable being a Mortgagee for the long term cash flow. The short term capital demand rules out SF as a prudent viable option, IMO.

I like the fact you are mindful of minimal loan amounts as a function of considering your exit. The solution you came up with (providing SF) is viable, but the story here sounds like you need all or a large part of the capital from the sale which you will not receive until you sell the note. As such, that parameter points you back to a Cash Buyer, perhaps play with the discount offered from FMV to entice an offer from the public and take your lump sum cash and use it as you wish.

I agree with Dion assessment of your cash needs in the sale of the property and conclusion about seller finance not being your best course of action!

@Dion DePaoli and @Pierre Thernize

Thanks - i just added or asked about another option that would allow me to keep the house:

"How to get and how much to pay on $20,000 1 month loan?"

Sorry i couldn't copy the link.


@Timothy Riley

I will comment here on the idea, which I was thinking when I posted. You have collateral, go see a bank about getting a loan to include the new purchase and rehab dollars. Aggregating all the properties would get you into conforming loan limits. Albeit, you will likely need a local bank or portfolio lender to cross all three properties (or so based on equity).

That too could be a private lender in nature or a partner but those both of those would be my second inquiry choice as they will cost you a little more than an institutional type lender.

Another option would be to put a tenant in the house and sell it as a loaded rental. An investor would be able to make the payment and still have cash left over.

You can also split the difference and sell to an investor for 50% down and carry the balance (50/50 model).

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here