How do I approach an owner for owner financing?

Question

I think I need to start with a small background so the question might make sense.  I recently bought my second home and am able to turn my first one into a rental. The tenants I've found are actually friends and neighbors from a couple doors down the road. They were previously renting and they mentioned their landlord is a great guy but is getting old and I've noticed he hasn't exactly kept up with market rates in rent and hasn't paid too much attention to the house.  With all of that being said I want to figure out a way to approach the owner with hopes of figuring out an owner finance option for his rental property.   I want to do it this way because I am leaving the country for "work" and this doesn't pay as much as my normal occupation does.  Even though I'm leaving, I don't want that to slow me down in my real estate investing. I'm pretty new, but I have fallen in love with real estate.  I don't want being away for a year to slow me down for that year. Which brings up some other potential questions, but I will refrain and maybe ask those in the future. Thanks a ton! The podcasts, forums, and the books have changed my life already and I can't wait to see where they help me get in the future!

Eliott Elias · Answer

Ideal candidate: owner does not need the cash for something else, is planning on investing it. Bingo, tell them why owner financing is a way better return than any investment they decide to put their money in, especially stocks.

Bob E. · Answer

@Kyle Clevenger Finding the right seller is always the challenge.  I would with your friends a few doors down and ask for their landlords number.  Give them a call and see how things go.

Beyond that some things that might be a good start:  1)  Find out how to get a list of recent code violations from your city or town, call and ask, these should be public record.  Then cross  check those properties for long time owners and reach out to them.  2)  Get a list of recent 3 day notices posted by landlords who did not get their rent, there are likely a percentage of those people that are frustrated and would like to exit.  3)  Check local for rent listings, these are landlords with vacant properties that just went through the headaches of getting them rent ready, they too might be amenable to the idea of being the bank and just cashing the check.

Bob E. · Answer

@Kyle Clevenger  One of the big benefits that you can offer with seller financing is you can pay more.  Chances are the owner of that property has been lowballed to death by wholesalers.  Opening with something along the lines of "I want to pay you what your property is worth" is a lot more likely to get their attention.

Bob E. · Answer

@Kyle Clevenger  The key to owner financing is making it work for the seller.

In this case it sounds like they have owned the property a long time.  If that is the case then when they sell they will have the capital gains and the recapture on the property, a big bill for a lot of people.  Seller financing will allow them to keep making money on the property, eliminate their need to do maintenance and the associated expense, all while spreading out the tax consequences across the life of the loan.

Listen to the Bigger Pockets Podcast Show / Pace Morby he talks a LOT about seller financing and how he makes it work for the seller.

How do I approach an owner for owner financing?

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