Seller Financing Vs Conventional for first time rental w/caveat

8 Replies

BP, I have a great opportunity to purchase a home being sold by my in laws.  They are pricing the home well below market value if it's sold within the family.  I'm a new RE investor and feel like this would be a great first property to add to my buy and hold portfolio.  

My question is, would it be advantageous for me to convince them to Seller Finance the home to me?  That way I'll still have lots of opportunity to purchase future investment properties in the near future via conventional financing? I've heard frequently on the podcast about investors having difficulty obtaining conventional financing after purchasing their first several investment properties, therefore, I figured avoiding a bank for my first property might provide me with additional conventional financing availability in the future. 

Thanks for helping to get this newbie going!

Getting seller financing is a great deal, just make absolutely sure this is a good rental. That is unless you want to lose family when you can't make the note because it turned out to be only an "OK" buy and you got 2 really bad tenants in a row.

Hey @Jonathan Davis !

Congrats on researching  a new possibility!

When it comes time for you to buy your next property, you'll have to report to the bank any real estate owned and any liens against the property.

One benefit of owner financing for you, is that perhaps your family will owner finance it to you with little to no money down. Which means more money in your pocket for the next property.

Keep in mind that some traditional financing loans require that you have 2 years rental history as a landlord.

So be sure to research your options with a local lender before you decide to go with owner financing or not. You'll want to know any specifics with your lender that may impact your decision to go one way or another.

Please let me know if you have any other questions! And as always, I'd love to connect on here. : )

Ashley

I appreciate all of the help, all.  The only complication that I foresee is that I'd be buying from the estate made up of my wife's aunts and uncles who are older; not one individual.  If they agreed to owner finance, then I'd assume that they would prefer a 10%down payment minimum and 15 year term or less so that they'd all live to see the note paid off. As you can tell, there's more information that I need to collect on my end; however, based on your feedback it appears that Owner financing wouldn't necessarily provide me with any additional advantages while starting my RE career if the terms aren't any better than going the conventional route.  Thanks again for all of your help. 

The question is best answered by the terms of the owner financing. If it is in fact better than the conventional, then the choice may be to go that way. With respect to the limit on financed properties, a lender will do research and see that there is a property in your name. If in that search a lein for that property pops up, it can be considered a financed property. A detailed review with an investment focused lender would be a benefit for you.

@Jonathan Davis Very interesting topic to me as this is a nearly identical story to situation I'm researching as well. Are there any family expectations on what you should or shouldn't do with the property? Is the property located in your market or is this an out of state purchase that you'll need to find a property manager for? What are your goals in REI beyond this potential first property? Depending on the numbers, maybe flipping the home would help you generate additional capital to leverage on future deals?

I'm evaluating similar questions and I wish you the best.  Be sure to report back on how the deal progresses and your learnings! 

Great questions @Eric Jackson .  I'll be speaking to the family this evening to better understand their expectations both for the property and in regards to Owner Financing if that's something they'll entertain.  I know they will put it on the market if someone in the family doesn't buy it, so I'm assuming that they don't have any specific intentions for the buyer.  Also, based on the comps, I'm not seeing great returns on flips, so buy and hold might be my best strategy on this property even though the future of flipping for the exact reason you mentioned interest me more as a beginner.  Thanks again for the help and I hope to have more details later today.