Finding Sellers willing to do owner financing on 2-4units
Mesa, AZ · Member since 2015 · 4 posts · 1 vote
Hi everyone,
I purchased a townhome at the end of last year and am "house hacking" Renting rooms and living in one of them but am looking to continue acquiring more properties. I am trying to find owners of 2-4plexes in Arizona (preferrably within an hour drive of Mesa, Arizona) looking to seller finance. I am not sure of the best way to market to these owners, what I have started doing is find the people who have purchased them in 2009-2013 where they have owned them for a few years and likely have some equity. I look them up in the tax records and I want to create a letter of some sort to send to their mailing adresses but I am also not opposed to going directly to their door and asking if they are interested in selling. Does anyone else have a good strategy for finding deals like this, I have great credit, stable self employment income but I do not want to do traditional loans putting 20% down. Thanks in advance!
Hey Cody! Well we are birds of a feather... owner financing is my passion. Unfortunately there is a reason it is the grail of real estate investing. They always want to cash out.
I love what @Jennifer S. said and think that is solid advise. Here is my experience.
I have tried a variety of different approaches to it and have only had luck three times. I live in So. Cal so the property values out here are a bit ridiculous. If you dont mind me ranting for a bit I will tell you what I have tried.
I drive around and look for homes in bad condition and really neglected yards. I then research them on realtytrac.com (paid membership to get the really good details). You would be amazed how many neglected homes are free and clear. I note the address and stats about the home.
Then I send yellow letters. I get calls back and talk to them.
I also go and knock on doors too. Unless there is some rule about that in AZ, it is totally ok to ask someone in person if they want to sell. Although, this method is more time consuming compared to a ton of yellow letters so I just reserve it for the ones I am really interested in. The letters seem to be getting higher results as I can send out a lot of them.
When it comes time to talk price, you have to have two offers for them. One is owner financing at a higher number with good for you interest. The second is an all cash offer but at 80% of ARV less rehab costs. When you give them two options they forget the third option of no thanks is out there. When you give them one option, their options are yes and no, (sadly when I get so excited and only make one offer that is the end). If they elect cash, then you can turn around and wholesale the deal to a rehabber and make a good chuck of change for your effort. I personally take 10% of the equity I preserved as a finder's fee.
Now the problems I have run into with owner financing mostly come down to them not understanding it. In the end I always say, So you will be the bank! And the benefit to you is that you end up earning 2/3 more off the sale of the home because of the interest. They always like this... until they hear 30 years. Then I lose them. I have found that offering a balloon payment in 10 years seems to get them interested again (in 10 years you can refinance or sell it out right). But in the end they chose the cash offer. Either they just don't understand the concept or they dont like how long it takes to get all the money. I have tried explaining to them that I will pay them 3-5% interest on their money while a bank will only pay them .25% interest... but I just get the I would rather have cash response.
The 3 scenarios it did work: 2 of them were from the midwest and were totally familiar with the concept and jumped on it. The other one was a vacant lot over looking a beautiful valley and they couldnt sell it for 2 years, so I told them I will do interest only for 5 years then a balloon payout for balance at 5 years. This way I can build with little cost on the property and rent the unit out to basically pay off most of the land then refi.
Just keep in mind that what ever deal you work out MUST be less than market rents when including all expenses and PITI.
If you find any methods of convincing them to do owner financing I would love to hear about it.