how does buying a 50% Owner Finance and 50% Hard money deal work?

19 Replies

Say this house is worth 200k ARV. 0 repairs needed. i want to flip this property.

they owe 100k on their mortgage, so i would use hard money to fund that and the seller would finance the other 100k....
Do i still buy it at 70% arv?

how do i analyze it for myself and for the seller

do people owner finance for flips? or only for rentals

@Jeff Jerma Typically I’d say owner financing is for rentals, but you could do it for a flip I imagine.

If this property needs no repairs you’re likely going to have a hard time finding someone to sell it to you for 70 percent of ARV.

70 percent of 200k is 140k, which means the bank gets 100k and the sellers (after costs) are getting less then 40 instead of the original 100k minus fees.

By flip the property I’m going to assume you mean wholesaling. So you’d need to buy it at 140k minis repairs and minus your fee, so probably around 130k. This means the sellers get very little due to their mortgage.

I would recommend you listen to a lot of podcasts and see my comment on your other post. Most of these questions will be answered if you do that.

I distinctively remember a BP podcast where they talk to a wholesaler from Dallas who makes over 400k a month and spends upwards of 100k a month on marketing alone.

@Jeff Jerma , if you can talk a Seller into selling their $200k home to you for just $140k, kudos. And if you can get that same Seller to agree to keep their mortgage in their name, while you give them $40k cash (from a Hard Money Lender) while also promising to pay their mortgage for them, even more kudos to you! So yes, try to get 30% off as-is value - every time! Cheers...

There is something else to keep in mind: Does the owner know you're plan to flip the house?  If they are doing a seller finance, I believe they are still on the title so they would probably have to be the ones to sign at a closing.  I'm probably wrong since I'm very new but this is something I'd ask a title person or real estate agent just to make sure.

--Zane

Zane M.

    Your issue will be with the hard money lender. Most don't allow for secondary financing, and must be approved by the hard money lender. They don't want the property to be leveraged too much. So, my guess is that IF you can convince a hard money lender to lend to you, they will still require that you come in with cash so that the TOTAL LTC is 80-90% and the ARV remains at 65-70%.

    Deals involving hard money and seller financing generally do not work.

    Both lenders expect to be in first lien position.

    @Jeff Jerma if you’re not able to put 15-25 percent down your options are basically hard money lenders, private money lenders or owner financing. For definitions and differences and those I’d read more here on BP

    @Jeff Jerma Something else to consider although it might not be preferable, some money is more than none.  Bring in another agent in your area that might be able to do the deal and pay you a finders fee or split the deal some way.  This way you still get some money for your time instead of none because the finances didn't work out like you planned.

    --Zane

    Zane M.

      Originally posted by @Jeff Jerma :

      @Tom Gimer

      how do i find that 100k without the hard money lender?

      The idea of "owner finance" is for the owner to finance all of it - except your deposit!

      ie. Effectively, paying off the owner's mortgage monthly, and extra amounts to the owner!

      If you can't talk a Seller into directly "lending" to you (putting them in second position to their existing mortgage), then - it's back to the drawing board for you.

      The idea is that the interest they'd be receiving from you is much better than what they could get from an actual bank, but would be costing you much less than a HML. Good luck...

      so what if its 100% owner financed.  Do i buy the property at 100% market value? or do i buy at 80% or so

      Originally posted by @Jeff Jerma :

      so what if its 100% owner financed.  Do i buy the property at 100% market value? or do i buy at 80% or so

       You'd still want to be all-in at 70% market value, or less! Otherwise, you won't readily be able to convert it into a 100% financed conventional Loan, which is what you'd be aiming for, right?

      and how do i tell the seller how much he makes in end?  If the house is 200k, no repairs needed id purchase it at 140k.

      How much does the seller make? what are typical terms? 10 year 5%?

      @Jeff Jerma how much time have you put into actually finding deals? All of this doesn’t matter if you can’t find deals.

      Owner financing terms are whatever you make them. I’d say 5-10 year terms and 6-8 percent are typical but truthfully it can’t be almost anything.

      Originally posted by @Jeff Jerma :

      and how do i tell the seller how much he makes in end?  If the house is 200k, no repairs needed id purchase it at 140k.

      How much does the seller make? what are typical terms? 10 year 5%?

      Tell the Seller they'd be making money the same way BANKS make money! 

      ie. Principal and Interest payments, charged and paid for regularly, by you, until paid off.

      In reality, most will not let you buy their $200k home for just $140k (plus interest).

      Nevertheless - that's what you'd want! [Don't forget: How much would you make out of it?]

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