Why should I owner finance

Question

I have a property for sale and people are offering to buy it, but I am getting alot of "owner financing" offers. I want 48K for the property and someone is telling me that I should do 8k down and finance the rest, but for how long should I finance, at what interest rate, and why???

Sharon Tzib · Answer

Hey David Beard if who does it habitually? A seller or a buyer, or both? Thanks!

David Beard · Answer

Why do it?

* To get top dollar.  As you've seen there is a lot more demand and you can ask more.  Just because you advertised $48K, you could likely get more on an owner-financing deal, say $55K just as an example.
* To spread out the capital gains tax.
* To create a note that will pay you a nice rate of interest, whatever you can negotiate that is below the usury ceiling.

Why not?

* The dreaded SAFE Act comes into play if you do it habitually.  In that event, you need to retain and use a licensed loan originator.
* You're holding a pretty illiquid note.  You'd have to sell it to a note broker for a steep discount to get the rest of your cash earlier.
* You have to foreclose to get them out of there if they default (3-6 mths, or more, with no payments and maybe a trashed house), so you better screen them closely.  They likely have poor credit to want owner financing.

Make it a 5 yr balloon note that forces them to clean up their credit so they can qualify for conventional financing. Get a hefty down payment, at least 15%.  I'd charge 8 to 9%, but you need to consult with a real estate attorney for legal practices in your state (and dodging around the SAFE Act).

Joel Owens · Answer

How much cash do you have in it??

Typically people at least try to get back initial investment plus some and then have the income from the loan ongoing and buy another property again.

You need to know foreclosure timelines in your state and how long to get back a property in case of owner default. Ask the buyers if they can put up any additional collateral as security.

If they have no money and no security do not give them the time of day.

If you have only 8k into the property you might choose to sell all cash fro a lower price of 35k etc. rather than finance. It's up to you what you want to happen.