Owner financing our rentals

6 Replies

We have been investing with a buy and hold strategy where we bought off market properties in Dallas TX, rehabbed them using hard money loans and refinanced them with a 30 yr fixed mortgages. Although the rentals were good in the beginning in terms of cash flow, we have soon realized that tenants eat up into cash flows with constant issues. As an alternative to this we have heard that we could owner finance these homes and still make some money without the headaches of maintenance. The process seems daunting, confusing and laden with some legal stuff that are better understood before venturing out. Although we know that there is a risk involved with this and that we can sell the house as owner financed, we are mainly worried about the backend stuff after the house is owner financed like the following - how to manage changes in property taxes and escrows - which of the changes to pass on to the buyers as their mortgage payment from time to time - how to manage non payments, foreclosures - how to handle home insurance changes - how to handle refinances, sale of property - how to handle any legal issues where the buyer is not happy with the house despite disclosing every possible thing. - due on sale clause - we know some attorneys can fight this - anything else that we may have missed Would those of you who have done something similar know how these things are handled. Are there any companies that provide full service management that cover these issues ? Are there any mentor/videos that can guide us through this process ? Appreciate the help !

I think that the best thing to do would be to find an attorney to ask all of these questions. 

They will be the person that you will go to when stuff hits the fan anyways. 

So you should get this person prepped before you even think about signing legal documentation!

Thanks @Antoine Martel . Agree that an attorney would be helpful for any legal matters but not sure how he/she would know how to handle changes in escrows and other stuff.

Arent there any companies that handle this kind of stuff for investors other than attorneys ?

Hi @Sonu Sharma ,  

Once the loan is created (presumably using a licensed originator), I would recommend you

- make sure the loan is property recorded with the county

- onboard it with a servicer, who will manage payment processing and track outstanding amounts due

- require that the borrower make monthly insurance and tax payments to your servicer, who will keep them in an escrow account for payments

- get the contact information for the home insurance company, many of them should let you be listed as the lender on the property so you can be notified if for some reason the borrower cancels the insurance

If the borrower tries to sell the property without notifying you, your loan will show up in the new buyer's title report so one way or another you will know. If they sell it as subject-to, you/the servicer will see the payments are being made from a new account so again you will learn of the change, up to you if you want to trigger the due on sale clause (your deed of trust should contain the relevant clause)

I'm not sure what you mean with legal issues if the buyer isn't happy with the house. If the sale has gone through clean, you are just the lender now and it's not your issue if they change their mind. The borrower can sell the house if they dont want it and pay you off.

Handling foreclosure is pretty straightforward in Texas assuming all your docs are properly done in the first place. Your servicer or attorney can help but shouldnt take more than a couple months. 

Check out Mitch Stephens RE Investor Summit podcast. He is from San Antonio, and realized the exact same thing that you have.... tenants eat up the profit. So he flipped all his rentals to owner financed deals.

Originally posted by @Sonu Sharma :

Thanks Antoine Martel . Agree that an attorney would be helpful for any legal matters but not sure how he/she would know how to handle changes in escrows and other stuff.

Arent there any companies that handle this kind of stuff for investors other than attorneys ?

 Maybe speak with an escrow company then and see if they can help? 

Thank you all for your comments so far !

Based on my research on the forums, I have the following note servicers who provide loan services and attorneys who provide related help !

Servicers:

http://notecollection.com/

https://allservicing.com/Home/Contact

Attorneys :

Horne and Associates

If anyone has had good experiences with others, would appreciate your experiences and contacts.