What should I expect from owner financing apartments?

[Brittany Samaniego]

Could I get a good explanation as to what owner financing is and if it’s a good idea for purchasing an apartment complex?

Also what are important things to ask the seller?

I’m new, thank you!

[Erik W.]

Owner financing is exactly what it sounds like.  Instead of going to a bank, the owner carries the mortgage/deed of trust and you make payments to them.

Typically, owners will want a higher interest rate than a standard bank loan.  They may not require as much documentation and can create more flexible terms.  For example, banks usually want a payment each month of $X starting 30 days after the loan begins, but an owner finance deal can be structed for payment starting however many months after the purchase and can be monthly, bi-monthly, quarterly, etc.  Creativity is unlimited with owner finance because it's whatever you and the Seller decide to do.  There are not guidelines and restrictions forced on you like there are with banks.

The downside of owner finance is that is a big Seller concession: they're not getting cashed out right away and they have the risk of what happens if you default.  So you are not as likely to get a big discount off the sale price....in general.  But a very motivated seller with a property that hasn't sold for 6 months might be extremely motivated and give you all of the above: low rate, flexible terms, and a steep discount.

Always ask.  The worst they can say is, "No."  As an experienced investor, I can tell you that one of the most valuable lessons you can learn in negotiation is to get the other person to say "No."  That way you know you've hit a limit.  If they say "Yes" to the first offer, you probably not gotten the best deal you could get.