Why is he owner financing?

3 Replies

Building a list of owners to contact and I have come across a multi unit rental property for sale that confuses me because the owner is offering owner financing. The owner has completed some upgrades and there doesn't appear to be too much work ($5k or less) to get this thing 100% rentable. 

So I guess I am trying to figure out the sellers' motivation for marketing / highlighting the fact that he will do owner financing?  

Please keep in mind that I am a complete NOOB (only been studying this stuff 8 hours a day for the last few weeks). But, the reason I suspect he may be offering owner financing is because the property is classified as commercial property, thus making the downpayment requirements higher (20-25%) for commercial lenders, if I understand correctly? 

Just hoping to get an idea of situations where a deal "looks good" on paper where the owner is offering owner financing but turns out to be a disaster.  Thanks!

Hi Jay,

Unless it’s 4 units or less AND the buyer is going to use one of the units as a primary residence, then the down payment is going to be around 20%, regardless.

It seems that you are categorizing owner financing as negative. That’s not always the case. There are many reasons why an owner would be interested in owner financing. One of them being, it turns the property basically into an annuity, or a fixed monthly payment, without having to do any management or work. If the owner is older, this is common.

I love looking at properties that offer owner financing as it offers much more flexibility in the deal. However, with all this being said, you definitely want to do your due diligence just like on any deal.

The owner may want to do owner financing if he likes monthly income earned in a mortgage type situation,but no longer wants to deal with the day to day maintenance of property mgmt- like repairs, taxes, insurance, dealing with tenants, 

He may not want to get the lump sum that he would with an outright sale.

Many investors, on the other side, cannot qualify for any more bank loans, so are happy to turn to a property with an option for an owner carry.

@Jay Ballman So there are reasons why someone would want owner financing. You can research those on the forums. But *usually* that financing comes with a higher purchase price. And “owner financing” doesn’t mean “zero down” or that the financing terms will be good for you :) I’d posit that the average owner financing deal is just a property where the owner can’t get what they want. So it’s (hypothetically) 10% down from the buyer, 10% owner financing, and 80% from the bank. You can have a bunch of different permutations.

For what it’s worth, I’d figure out *first* if it’s the right property for you, and only after saying “yes” to that question would I worry about financing machinations.

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