Owner Financing Terms & Questions

2 Replies

Hey BP family!

I’m checking out a condo this weekend and here’s the quick overview.

1- How’s this deal look, anything jump out?

Owner financed 2/2 condo

78k asking price

15% down: $11,700

15 year repayment

4.71% interest

$514/month payments

Should rent for around 900-1000

2- He’s asking I pay for a lawyer to write up the paperwork, that should be around 200-400 correct? Any buyer friendly terms I should add in, or does anyone have recommendation on how to go about this?

3- Any other things to look for/do when it’s owner financed?

Thanks in advance!

@Dominic Flint

With a condo you need to check the financial condition of the condo association, as well as determine if a large number of units are owned by one person, because then they will control the association. Further, the condition of the entire structure, not just your unit is a concern.

Many condo associations never maintain anywhere near enough in a reserve account for repairs and replacements. Then either a special assessment is required or HOA fees are raised enormously.

There are companies that provide opinions as to the deficit or surplus in a condos reserve account, and also will forecast any anticipated assessments or increase in fees. However they are usually hired by the association, not an individual unit owner.

The seller may (or maybe not) be offering owner financing because the condo complex does not qualify for FHA, FannieMae or conventional financing. This occurs when the HOA has inadequate reserves, the HOA fee is too high in relation to the income of the owners, or too high a percentage of owners are not occupying their units.

I would definitely insist that the note being held by the seller be assumable, if the above is correct it may be your only way to sell.

Additionally you will need to see if the seller owns the property free and clear, or is he wrapping an existing mortgage note within his new seller financed note? If a wrap is being used, and the existing underlying note is not assumable, then the note holder can accelerate the note at any time, demanding a payoff in full in a time period compliant with the laws of the state the property is located in.

Many states, like Texas have state forms in which the blanks can be filled in to be used for an offer on residential property. Other states almost make it necessary to involve legal services. For a competent real estate attorney to draw up an offer or purchase contract on a condo would probably start at $750 to $1000. If he will be utilized to check the health of the association, bylaws, etc, you can anticipate a bill of in excess of $3000

Experienced investors have offer forms they fill out themselves, but unless the state has a promulgated contract, you will be foolish not to engage legal counsel.

Condos are a different investment animal and as was previously stated, a poorly run and under-funded HOA can ensure losses for years to come from an investment perspective. Monthly HOA fee? What does HOA cover? Insurance cost? Taxes? Overall condition of property (plumbing, roof, foundation, etc) since that is how you'll get spanked on a special assessment.