Owner Finance vs. Conventional to Buy Rental Property

5 Replies

I am looking at a property to buy and hold as a rental. It is a 3 bed, 2, bath, 2 car garage, 1,800 sq. ft. built in 1980. It will need carpet, paint and a few minor repairs. The rental comps are $1100. I will be able to get that for this house, maybe a little more.

The owner wants $80,000, that’s his number; I might do a little better. The comps are around $110,000. I am estimating $12,000 in repairs to get it ready to rent.

The owner said he would consider owner financing but on a max 10 year term. We didn’t talk down payment or rates. I chose 8% interest and 5% and 10% down. I don’t know if he would agree to these terms. I have not bought a property with owner financing, so I might be doing the math wrong. With that said; I came up with this:

    1. Owner financed, 10 years, 8% interest, 5% down, payment of $922, PITI $1168, cash down $4000

    2.Owner financed, 10 years, 8% interest, 10% down, payment of $874, PITI $1120, cash down $8000

    3.Conventional, 15 years, 5% interest, 20%, payment, payment of $506, PITI $752, cash down $16,000

    4.Conventional, 30 years, 5% interest, 20%, payment, payment of $344, PITI $590, cash down $16,000

With these numbers, it has a very negative cash flow for the owner financing scenarios. Both of the conventional routes should produce a decent cash flow. All the other variables will be the same, vacancy rate, repairs, etc.

I am in a cash position to absorb the negative cash flow. However, my current investing mind set is cash flow driven. Would you consider the owner financing on the 10 year term? Less cash to get into the deal and year 11 would look pretty good. Or would you put in more cash up front to have cash flow from the beginning?

I didn't run the numbers myself but it looks like your payment on the owner financing options are assuming that you'll pay off the house in 10 years right? Would the seller be fine with you amortizing the loan for 30 years so that you have that lower payment of the conventional loan and then setting up a balloon in 5 or 10 years where you'd either have to refinance or just pay off the remainder of the loan out of pocket?

I agree with @Troy Stoehr



30 yr Amor

Pmt 538.21




30 yr Amor

Pmt $557.66


This does not include insurance, taxes, maintenance, etc. Just PI.

@Troy Stoehr and @Brian Gibbons I will ask about amortizing for 30 years with a balloon at the end but I don't think he will be interested. If it had to be the 10 year amortization, would you do it?

What about getting a private lender for $75K, all cash at interest only at 6%? and own it, re fi down the road the Private Mortgage?

6% in a SDIRA.

See this for explanation.


At low down payments, sellers may have some concern about winding up upside down if the place gets trashed and you walk away. Most sellers I've talked to want more than 20%.

What about having him hold a short term note, perhaps interest-only or no payments, until you get it rehabbed and rented? Then you proceed with a bank refinance and pay him off. Seller gets some money up front and a shorter risk duration. You get in for less than using a bank, can bring it up to market rent, and if all goes well, get it refi'ed at 75% LTV and perhaps have to come up with less of a DP than you would if you bought through bank initially.

I would punt on a ten year term. I finance at 15 year and cash flow is tight, but you're negative basically with just your base costs. If you believe in the 50% rule you'll be bleeding much cash, even if you can afford it.

Good luck -


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