First Time closed 2 Owner Finance deals same day - WE LIKE IT!!

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First Time closed 2 Owner Finance deals same day - WE LIKE IT!!

Vijaianand Thirunageswaram
Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes

How you doing folks?  

Jan is already gone and only 11 months more on this year... Wow, time is flying fast...

Anyway, I was just excited to share that last month, last day  we closed two owner financing deals back to back. It was our first time doing it but all went per plan and closed as plan. Actually one of them we closed week early because we were able to get the paper work done quick and every thing worked out as expected and buyer wants to close early so we got it done.

How I end up starting out? 

I been wanting to do owner financing ever since I attended REI meeting last year. Guy who talked about owner financing really peaked my interest and I talked to my wife and she also liked the idea. So we were looking for a way to start it out. At that same time last year we bought our 5th property for flip but didn't able to sell due to market slow down and bad contractor job. We were trying for rental as our back up plan. Rent also didn't go quickly as expected due to slow Holiday months. That's when we thought why can't we try out owner financing. We quickly refinanced our Private loan to high 6.25% interest loan and listed for owner financing in Jan 2019. It went under contract immediately the same week and we closed end of the month.

What are the NUMBERS?

1st Lien - $125,500 - 6.25% - Montly payment - $771.90

Sale Price - $175,000 - $1000 contribution = $174,000

Down payment - 10%

2nd Lien (our finance) - $157, 500  - 

Interest rate - $9.95 , 8/1/1 ARM - 20 year Amortization

Monthly  Payment - $1425.66, Escrow paid by Borrower

Cashflow: $653 (before tax) - 

That's damn good cash flow. We are out of the property and as well made ourselves good check every month. 

Con: As usual risk factor on the 1st lien being called by the lender. We talked to many investors who are doing it and everyone said the same thing, don't worry it will never happen. We also hope so as well.  

Secondly if they don't pay after a year or so, we can foreclose and get the property back and put it back in the market. We got 10% down payment to support if funds are needed. We hope they won't because 10% almost $20k after all their closing cost is paid by them. That's lot of money for these folks. 

On our 2nd one, we bought that property to keep it as rental because my wife loved the area. But I kept telling her numbers didn't work due the HOA and High taxes and want to get rid of it. We put it up for sale and owner financing and got it sold.

Numbers

Cash Purchase: $141,500

Rehab: $1500

Sale Price: $177,000 - Seller Contribution $1500 = $175,500

1st Lien (our Loan) - $159, 300

Interest: 10% - 30 year Amortization

Monthly Payment - 1397.97, Escrow paid by Borrower

Cashflow - $1397.97 (before taxes)

We are totally blown away by this opportunity to expand our cash flow. So we connected with the agents who deal with owner financing buyers and plan to do more.. Only issue, we need non-conventional loan for 6-7% or cash. Our DTI won't help much since we already have 5 rentals and this owner financing mortgage will show up as well. So I am looking for lender who can do 6-7% long term without NO Due clause. Let's see I get lucky...

It's good start for this year and hope to continue this momentum.. 

6Reply
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Most Popular Reply

Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
Originally posted by @Vijaianand Thirunageswaram:

How you doing folks?  

Jan is already gone and only 11 months more on this year... Wow, time is flying fast...

Anyway, I was just excited to share that last month, last day  we closed two owner financing deals back to back. It was our first time doing it but all went per plan and closed as plan. Actually one of them we closed week early because we were able to get the paper work done quick and every thing worked out as expected and buyer wants to close early so we got it done.

How I end up starting out? 

I been wanting to do owner financing ever since I attended REI meeting last year. Guy who talked about owner financing really peaked my interest and I talked to my wife and she also liked the idea. So we were looking for a way to start it out. At that same time last year we bought our 5th property for flip but didn't able to sell due to market slow down and bad contractor job. We were trying for rental as our back up plan. Rent also didn't go quickly as expected due to slow Holiday months. That's when we thought why can't we try out owner financing. We quickly refinanced our Private loan to high 6.25% interest loan and listed for owner financing in Jan 2019. It went under contract immediately the same week and we closed end of the month.

What are the NUMBERS?

1st Lien - $125,500 - 6.25% - Montly payment - $771.90

Sale Price - $175,000 - $1000 contribution = $174,000

Down payment - 10%

2nd Lien (our finance) - $157, 500  - 

Interest rate - $9.95 , 8/1/1 ARM - 20 year Amortization

Monthly  Payment - $1425.66, Escrow paid by Borrower

Cashflow: $653 (before tax) - 

That's damn good cash flow. We are out of the property and as well made ourselves good check every month. 

Con: As usual risk factor on the 1st lien being called by the lender. We talked to many investors who are doing it and everyone said the same thing, don't worry it will never happen. We also hope so as well.  

Secondly if they don't pay after a year or so, we can foreclose and get the property back and put it back in the market. We got 10% down payment to support if funds are needed. We hope they won't because 10% almost $20k after all their closing cost is paid by them. That's lot of money for these folks. 

On our 2nd one, we bought that property to keep it as rental because my wife loved the area. But I kept telling her numbers didn't work due the HOA and High taxes and want to get rid of it. We put it up for sale and owner financing and got it sold.

Numbers

Cash Purchase: $141,500

Rehab: $1500

Sale Price: $177,000 - Seller Contribution $1500 = $175,500

1st Lien (our Loan) - $159, 300

Interest: 10% - 30 year Amortization

Monthly Payment - 1397.97, Escrow paid by Borrower

Cashflow - $1397.97 (before taxes)

We are totally blown away by this opportunity to expand our cash flow. So we connected with the agents who deal with owner financing buyers and plan to do more.. Only issue, we need non-conventional loan for 6-7% or cash. Our DTI won't help much since we already have 5 rentals and this owner financing mortgage will show up as well. So I am looking for lender who can do 6-7% long term without NO Due clause. Let's see I get lucky...

It's good start for this year and hope to continue this momentum.. 

Congrats man!

Those are solid numbers.

Here's my suggestion for your dilemma of your DTI being maxed out since you already bought 5 properties.

Why not BUY properties using owner financing as well?

Then you sell using owner financing!

The key is buying the property with little to no money down at a 10-20% equity (and low interest) and then selling them at 5-10% higher than market get 10% downpayment and charge them a little bit higher interest.

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  • Tony Castronovo
    Rental Property Investor · Park City, UT · Member since 2016 · 678 posts · 531 votes
    7y

    That’s awesome @Vijaianand Thirunageswaram! And thanks for sharing the details. Very interesting. I have a local friend who is exclusive to owner financing. Let me know if you want to connect with him. Might learn from his experience.

    0Reply
  • Vijaianand Thirunageswaram
    OP
    Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes
    7y

    sure @Tony Castronovo. Always open to connect and learn more.. Learning never ends!!

    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    7y
    Originally posted by @Vijaianand Thirunageswaram:

    How you doing folks?  

    Jan is already gone and only 11 months more on this year... Wow, time is flying fast...

    Anyway, I was just excited to share that last month, last day  we closed two owner financing deals back to back. It was our first time doing it but all went per plan and closed as plan. Actually one of them we closed week early because we were able to get the paper work done quick and every thing worked out as expected and buyer wants to close early so we got it done.

    How I end up starting out? 

    I been wanting to do owner financing ever since I attended REI meeting last year. Guy who talked about owner financing really peaked my interest and I talked to my wife and she also liked the idea. So we were looking for a way to start it out. At that same time last year we bought our 5th property for flip but didn't able to sell due to market slow down and bad contractor job. We were trying for rental as our back up plan. Rent also didn't go quickly as expected due to slow Holiday months. That's when we thought why can't we try out owner financing. We quickly refinanced our Private loan to high 6.25% interest loan and listed for owner financing in Jan 2019. It went under contract immediately the same week and we closed end of the month.

    What are the NUMBERS?

    1st Lien - $125,500 - 6.25% - Montly payment - $771.90

    Sale Price - $175,000 - $1000 contribution = $174,000

    Down payment - 10%

    2nd Lien (our finance) - $157, 500  - 

    Interest rate - $9.95 , 8/1/1 ARM - 20 year Amortization

    Monthly  Payment - $1425.66, Escrow paid by Borrower

    Cashflow: $653 (before tax) - 

    That's damn good cash flow. We are out of the property and as well made ourselves good check every month. 

    Con: As usual risk factor on the 1st lien being called by the lender. We talked to many investors who are doing it and everyone said the same thing, don't worry it will never happen. We also hope so as well.  

    Secondly if they don't pay after a year or so, we can foreclose and get the property back and put it back in the market. We got 10% down payment to support if funds are needed. We hope they won't because 10% almost $20k after all their closing cost is paid by them. That's lot of money for these folks. 

    On our 2nd one, we bought that property to keep it as rental because my wife loved the area. But I kept telling her numbers didn't work due the HOA and High taxes and want to get rid of it. We put it up for sale and owner financing and got it sold.

    Numbers

    Cash Purchase: $141,500

    Rehab: $1500

    Sale Price: $177,000 - Seller Contribution $1500 = $175,500

    1st Lien (our Loan) - $159, 300

    Interest: 10% - 30 year Amortization

    Monthly Payment - 1397.97, Escrow paid by Borrower

    Cashflow - $1397.97 (before taxes)

    We are totally blown away by this opportunity to expand our cash flow. So we connected with the agents who deal with owner financing buyers and plan to do more.. Only issue, we need non-conventional loan for 6-7% or cash. Our DTI won't help much since we already have 5 rentals and this owner financing mortgage will show up as well. So I am looking for lender who can do 6-7% long term without NO Due clause. Let's see I get lucky...

    It's good start for this year and hope to continue this momentum.. 

    Congrats man!

    Those are solid numbers.

    Here's my suggestion for your dilemma of your DTI being maxed out since you already bought 5 properties.

    Why not BUY properties using owner financing as well?

    Then you sell using owner financing!

    The key is buying the property with little to no money down at a 10-20% equity (and low interest) and then selling them at 5-10% higher than market get 10% downpayment and charge them a little bit higher interest.

    1Reply
  • Vijaianand Thirunageswaram
    OP
    Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes
    7y

    @Michael Ealy That's too many wraps to go around which will really complicate things unless the seller owns straight and clear.  It's not easy available in the market either. If you need to scale, you need to replicate it fast with good formula. I have the good formula but just need the right source to fund it.

    0Reply
  • Khanh Tran
    Pearland, TX · Member since 2017 · 42 posts · 0 votes
    7y

    Hi @Vijaianand Thirunageswaram

    Can you please let me know how does your 1st owner finance works? You bought a property and refinance for 125K under your name, and then you sold your property and put a Deed of Trust for 157K. So, you still have a loan balance of 125K under your name. Is that correct? Did your mortgage is OK with it? Do you concern with Due on Sale clause?

    Thanks,

    0Reply
  • Felipe Carrillo
    Spring, TX · Member since 2016 · 39 posts · 8 votes
    7y

    @Vijaianand Thirunageswaram Congrats on that deal! Owner financing is a great strategy that can generate very good returns. I can speak from personal experience.

    @Tony Castronovo @Vijaianand Thirunageswaram @Michael Ealy

    In case you weren't aware, legislation will be passed in Texas later this year that is aimed at preventing this type of deals. Unfortunately, there are newbies/ investors that are unscrupulous and have scammed consumers. Therefore, legislation will be introduced to protect the consumer, and owner financed deals could be banned. I'd like to encourage you and others who understand the true value of owner financing (not only for the investor but also for the consumer) to join Texas 100 so that we can continue to use this great strategy. This is NOT a drill or a scam. If the bill is passed into law in it's current form, this investing strategy will be killed.

    If you want to know more about the proposed legislation, let me know and I can point you to more resources so that you can learn more. Otherwise, please make an effort to support Texas 100 and get involved. 

    Felipe

    0Reply
  • Chris Hopper
    Investor · Cypress, TX · Member since 2015 · 143 posts · 144 votes
    7y

    @Vijaianand Thirunageswaram, what lender did you use for the first refi you mentioned at 6.25%?

    0Reply
  • Vijaianand Thirunageswaram
    OP
    Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes
    7y

    @Khanh Tran That's absolutely right!! Yes as I mentioned there is risk of getting called by the lender which has never happened to any investors. Because banks and lenders are in the business of lending and as long they are getting monthly payment, they don't like to call the note and go to foreclosure and waste their time and money. I hear the same thing from other investors. Investments are always risky and this one is little more but it's worth it. :-)

    @Felipe Carrillo I heard about this movement to stop anything obstruct the owner/seller financing deals. It's been going on for a while. I don't they will do it. 

    @Chris Hopper I refinanced conventional. Right now I have 5 rentals on conventional plus my homestead property plus this one. The deal with DTI is as long the rentals are wash, it won't affect your DTI. Currently all my rentals are wash. So my homestead property, this owner finance mortgage will show up as debt. I might be able to buy another rental prop if I don't lock up with another owner finance. My goal is to get two more rentals this year and do more owner finance if I find a lender who can do 6-7% fixed.

    0Reply
  • Chris Hopper
    Investor · Cypress, TX · Member since 2015 · 143 posts · 144 votes
    7y

    @Vijaianand Thirunageswaram gotcha.  I have about 20 I need to refi, just checking to see if you used portfolio lender or not.  I'm always looking for a new/good lender!

    0Reply
  • Vijaianand Thirunageswaram
    OP
    Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes
    7y

    I have one property under Portfolio lender which I forgot with Visiolending. They are good but charges quite a lot. I have contacted them again to see they are willing to lend for me. 

    You said you have 20 prop to refi. Did you have any conventional at all?

    0Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y
    Originally posted by @Vijaianand Thirunageswaram:

    @Michael Ealy That's too many wraps to go around which will really complicate things unless the seller owns straight and clear.  It's not easy available in the market either. If you need to scale, you need to replicate it fast with good formula. I have the good formula but just need the right source to fund it.

    Vijay, did you use an RMLO for the resale to your buyer?  

    I learned this week that it is possible to sell part of that note to a note buyer and keep the spread in place.  Proceeds go to take out the bank, giving note buyer first lien.

    0Reply
  • Vijaianand Thirunageswaram
    OP
    Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes
    7y

    Yes I did. I used @Sarah Montes at Texas Pride lending in Dallas.  They are great to work with. 

    I know you can sell the note but didn't know that you can sell part of it to pay off and still keep the spread. That would be great.  Let me know. 


    Vijai

    1Reply
  • Dave Chapa
    Rental Property Investor · Katy, TX · Member since 2015 · 175 posts · 111 votes
    7y

    Congratulation  @Vijaianand Thirunageswaram! You were able to turn lemons into lemonade.

    0Reply
  • Luciano A.
    Developer · Houston TX · Member since 2018 · 423 posts · 400 votes
    7y

    @Vijaianand Thirunageswaram Congrats. So I have a few things you might want to consider. When you owner finance you will no longer be able to depreciate or write off like you can as a rental. Which I am sure is no big deal since you wont have the headaches of a landlord. You are more like the bank now. 

    Due on Sale clause........ I was told the same thing when I did a few wraps. One was called by bank about 2 years into the deal. Payment was always on time. With home prices up some banks will not hesitate to call loan given they know they can turn around sale asset and protect themselves.

    The other issue is the whole Dodd/Frank Act. You might want to look at the details  before you rack up alot of these wraps. Especially I think after 5 houses there is more steps you have to take than when you do just one. 

    I have enjoyed receiving owner finance as the buyer but that too has had its issues. 

    Just thought I share but in no way want to discourage you as there is always a way if their is a desire. 

    Best of luck 

    0Reply
  • Luciano A.
    Developer · Houston TX · Member since 2018 · 423 posts · 400 votes
    7y

    @Chris Hopper I recently did a large refi with portfolio lender. Allegiance Bank got 5.5% for 20 years with 5 yr balloon. They were great to work with and dont have alot off fees.

    Hope that helps 

    0Reply
  • Anh Pham
    Specialist · Houston · Member since 2018 · 2 posts · 1 vote
    7y

    Congrats @Vijaianand Thirunageswaram! 

    0Reply
  • Brandon H.
    Investor · Houston, TX · Member since 2014 · 8 posts · 2 votes
    7y

    Hi @Vijaianand Thirunageswaram

    You have been great contributor in our local BP market.  Thanks for sharing the detail info.  You have open my eye about the new creative opportunity .  I will look into it as well.  That is the beauty of real estate investing , right  ?

    On your previous response "The deal with DTI is as long the rentals are wash, it won't affect your DTI" , can you explain and see how it works in order to get as many mortgage as you are allowed ?

    0Reply
  • Vijaianand Thirunageswaram
    OP
    Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes
    7y

    @Brandon H. Thanks! I strongly believe if you are part of community, it your responsibility as a community member to share the experience. It has to be give and take and not just take. Community won't cherish if it's just taking info and not sharing.. 

    For your question about wash, DTI is keyword Debt to Income ration when it comes to getting loans. Your overall DTI needs to be below 42% or so to get a conventional loan. If you have your home and one rental property, it's mortgage and expenses will be liability side against income. If there is no rent, your expense will go against your income. if there is rent, it will be counted as income and it will wash your rent expense and DTI will stay same. You can continue to buy another rental. That's the point.

    0Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y
    Originally posted by @Luciano A.:

    @Vijaianand Thirunageswaram Congrats. So I have a few things you might want to consider. When you owner finance you will no longer be able to depreciate or write off like you can as a rental. Which I am sure is no big deal since you wont have the headaches of a landlord. You are more like the bank now. 

    Due on Sale clause........ I was told the same thing when I did a few wraps. One was called by bank about 2 years into the deal. Payment was always on time. With home prices up some banks will not hesitate to call loan given they know they can turn around sale asset and protect themselves.

    The other issue is the whole Dodd/Frank Act. You might want to look at the details  before you rack up alot of these wraps. Especially I think after 5 houses there is more steps you have to take than when you do just one. 

    I have enjoyed receiving owner finance as the buyer but that too has had its issues. 

    Just thought I share but in no way want to discourage you as there is always a way if their is a desire. 

    Best of luck 

    He already knows about this Dodd-Frank thing as he has been working with Texas Pride RMLO.  He will be compliant with Dodd Frank.

    0Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y
    Originally posted by @Vijaianand Thirunageswaram:

    Yes I did. I used @Sarah Montes at Texas Pride lending in Dallas.  They are great to work with. 

    I know you can sell the note but didn't know that you can sell part of it to pay off and still keep the spread. That would be great.  Let me know. 


    Vijai

    Yes I would rather leave the underlying financing in place, but in case the loan is ever called, this would be very useful, to have everything already in place to sell the note if needed. 

    I am looking at doing one of these with my SD IRA, and initially I thought about selling part of the note as a means to eliminate or reduce UBIT, but I'd have to give up a lot of the spread, I think. So might be better to just pay the taxes out of the IRA, not sure... that is just a math exercise. However I would want to know that I have a QM note ready to sell if needed.

    0Reply
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