Learning about Owner Financing

11 Replies

Don't know about your meetup.  I've purchased two properties with owner financing, though.  One was raw land, which I improved and sold.  Another was a condo.  

The reason I was able to get owner financing on both deals was because nobody wanted to buy their properties at the price they were asking, bottom line.  So I offered to purchase them at full price, if they would finance them (as I wouldn't have qualified for any bank financing either time), accept a low down payment, but a higher interest rate by a few points than the going rate.

The condo seller countered with asking for a balloon payoff in 10 years.  

In both cases, the owners were not restricted by mortgages that wouldn't allow them to assign their mortgages.  I believe they both owned their properties free and clear.

The raw land, I only put down around $2,000 on a $16,000 lot.  The condo, I put down 5% on a $60,000 condo.  (Those were the days, eh? LOL)

wow @Sue K. it sounds like you got two really good owner financed deals. Hoping to learn how to follow in your footsteps. $2k down and 5% down really beats the standard 20% down. How did you find the owner financed properties, not MLS?

Actually both were listed in the MLS. The land was for sale by an owner that nobody locally wanted to do business with - a real jerk lol. That was in a small mountain area in WA state. I drove by it for a year with a for sale sign on it, and when I'd saved up about $4,000, I made an offer on it through his agent. He wanted $4,000 down, but I said I need the extra money to put in a driveway & septic, etc.

The condo was listed in the MLS during the real estate crash in 1996 in Davis, CA. The condos were hard to get bank financing on, and the market was dead. The listing even said owner financing is possible. I asked a local agent to make my offer for me with the full price, 5% down and 10% interest, and told her my credit isn't great. I had a decent job, though, as an office manager.

Interest rates at the time were around 7%, if I remember correctly - part of the reason the market was so dead.  The owner had purchased the condo for their kid to live in while attending UC Davis.  

Both times I knew what I wanted and just kept looking.  When the opportunities came up, I jumped on them.  And fortunately, there were no other offers that were better :-)

I have attended one of their meetings.  They are decent.  Some groups have mainly newbies but this one seemed to have a pretty decent mix of seasoned investors.  Granted I only went once and it was on a pretty popular topic.  

@Rhondalette W.

There is an old thread post Dodd-Frank here "What do you want Mr. Note Holder" search for that. It is long, look at my and Dion's posts as well as Ken Rishel's (not sure if he posted in that one).

There is so much information, how to stuff, on the internet, and speakers on the topic that are sizzle and not enough meat, or worse, plain wrong. Besides Dodd-Frank, every  state has predatory lending laws. The person introducing financing as an option can be responsible for the transaction, buyer or seller, so have anything "taught by self appointed experts" reviewed by a local attorney familiar with financing, not just any RE attorney before implementing anything. Fines in RE can be thousands if you mess up, fines related to financing can be up to $100,000+ and/or 10 years in a federal hotel. Not to scare you away, but mention it to emphasize the significant difference between RE and finance.

Anyone dishing out information will probably swear their stuff is perfectly legal......horsefeathers, each state can be different and while I'm tuned in at the federal level, no one knows the laws of all 50 states,   SEC issues, tax issues, brokerage requirements and the intertwined ramifications of all financing regulations! I strongly suggest you get assistance from an attorney or an experienced mortgage type in your local area! BTW, this is why my book is still in the grinding stage, 50 states, federal regulations and trying to orchestrate those matters into a commonly accepted practice is like rocket science. Unlike many gurus, if my stuff isn't correct I don't want it out there.

In everything you hear or read about seller financing, take it with a grain of salt, look for the common threads of "programs" or "strategies" and form a foundation of ideas. What is most common is most likely acceptable, what is off in left field is doubtful.  

These "seminars" usually are not educational from a finance standpoint, they are held as a marketing ploy to generate business at some level. That may be fine, but recognize the angle the speaker is coming from, are they a mortgage originator, attorney, "successful" investor, mortgage broker, lender......what's the game? 

You can get some good ideas from many sources, just beware before you dive in. Good luck :)

thanks @Shawn Thom for sharing your experience with this meetup group. 

Account Closed this is a really good article. I am glad you referred me to it. I must admit that reading the process makes me even more nervous than I was before. Specifically, the arriving 15 minutes early to network and hanging around afterward, having the 30 second commercial and business cards ready to pass around etc. now I am having second thoughts about attending?!? I don't feel prepared...

@Bill Gulley wow!! Thank you for the warning. You have pointed out that there are a lot of different moving parts to owner financing and there could be serious consequences if I am pulled into the wrong type of deal. It sounds very complicated. When do you plan on completing your book on the topic?

LOL, my book is a running joke almost on BP, seems just prior to the end of days for me, due to the issues pointed out, but hopefully, I'll find a way to put information out, perhaps through on going blogs.  

Seller financing can certainly be a deep subject for investors buying or selling, the process is not rocket science but the consequences bounce off of so many angles that can cause significant issues. The initial trick is to be aware of personal finance issues, ability to pay, predatory matters and structure, fairness in risks taken, if those areas can be managed the process of having a transaction is well worth the endeavor.

Financing is an art, your goal is to paint a master piece, not a paint by numbers picture. You don't need an MBA or a finance degree, you do need to understand various aspects to succeed in your deals. You can do it!!!  Good luck :) 

@Rhondalette W.

Networking is simply meeting people and asking what they are involved in. Your commercial is a brief intro who you are what you are trying to do etc.

Staples 15 minutes can print you some business cards.

The only barriers are ones you put up.

Paul

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