Owner Financing Math!!! Am I over thinking this or Is this a process

4 Replies

I know this may be a loaded question but I am looking for some help concerning owner financing. The calculations on how to handle providing offers to sellers and buyers creating a win-win for us all. I have actively been buying and selling real estate up to this point but looking to expand my opportunities on doing more deals. 

I understand the process of owner financing and the things leading up to presenting the offers I guess bottom line is the confidence of knowing what you are offering is ethical and fair knowing that this I am doing my part to make a no deal into a deal where the seller did not want to accept cash. 

So as an example I have a property valued at 100k that's free and clear and seller just wants to do a deal but not my wholesale cash offer. 

My 3 options would be net payments, interest payment, or cash

What would be ways to work the numbers in determining the monthly payment with Interest to my seller with or without balloon payments. And How to work the numbers to make sense for a tenant buyer?   

Something important to find out is how long they want to wait for the full amount.  That will really vary by seller.  I am willing to be most sellers never even thought about owner financing their property.

I have seen deals structured at X amount of money then the full amount is due after 5 years or even just x amount for 20 years etc at x% interest.

You have the right idea to give the seller a few options.  If they do go with financing it they will have money coming in to them every month.    For a retired person that might work out really well as it will be money they can use and travel wherever they please while the house is taken care of.

Yes that's the exact direction I'm going with it. I guess I'm getting caught up on the math that takes place with the seller in your example of 

I have seen deals structured at X amount of money then the full amount is due after 5 years or even just x amount for 20 years etc at x% interest.

And then looking at it from the vantage point of offering terms to my end buyer or tenant buyer that makes sense, leaves me a spread and understanding the "time of money" here, so I know how my money is being affected along the way. 

@Wesley Merriweather

I have also heard of some buyers offering something like 5% down now then either payments for 20-30 years or a balloon payment due after a few years.

Low money down is definitely a good way to go and you can't get a 5% down conventional loan at the bank.  Money down is cash in his pocket today.  It could potentially work pretty well in convincing the seller to stretch those payments out further.    What your payments will be will really depend on what the rents are in the area.  That could also work in your favor as well if you know what the rents are and you could negotiate the terms more in your favor.  You could stretch them out further or maybe get a lower interest rate.

I am curious about the equity in the house. Are you getting a really great deal pricewise? If do seller finances and the price you pay the house too close to the market price, what would be your exit strategy (on a balloon or pay off in a couple of years) if you don't have enough equity to refinance the house at the end of the agreed term?

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