Ohio Owner Financing Scenarios

9 Replies

Hi All,

I just wanted to get a quick read on a scenario and a general opinion if you would do the following deals. I am contemplating on selling two of my properties via a land contract/owner financing. This is purely for analysis sakes and I will not reveal actual addresses but will give as much details as possible. Both properties, I have spent a lot rehabbing and are all up to date on MEP systems, all repairs made, fully occupied with great tenants and pays on time, and absolutely no deferred maintenance. It is truly a turnkey that is ready to be turned over to investors. I have updated these properties to be bright, modern, and comfortable.

Deal 1:

Location: Central Cleveland 44105

Grade: Class C Neighborhood

Property Details: Duplex with 2 bd 1 ba down, 3 bd 1 ba up, and an enclosed 2 car garage

Rents: DN: $750 - UP: $750 Garage: $50 per month to UP tenant ($1550 per month total)

Rehab scope: Spent over $13,000 on rehab to make this place shine. New paint, water tanks, one furnace (other was still working fine), new flooring and carpet throughout, new doors and hardware, fixed all plumbing issues, updated electrical, and new appliances for both units.

Property taxes: $1,100 annual

Utilities: I allot $200 per month, yet to exceed that (Only pay for water and sewer, trash is included in Property Tax)

Maintenance: $100 allotted, yet to exceed ($70 for lawn mowing from Spring to Fall (bi-weekly), and winter up to $100 for snow plow)

Offering: $67,500 (10% down)

Terms: 72 months (30 year Amortized)

Interest: 6.5%

Payments: $1,188.64 per month

Additional Comments: This property gets a ton of interest because it is the nicest and best looking property in that neighborhood. Looks very unique and modern on the outside with updated Vinyl siding and form that sets it apart from typical Cleveland duplexes.

Deal 2:

Location: Maple Heights, OH 44137

Grade: Class C+ Neighborhood (More suburban)

Property Details: Duplex with 2 bd 1 ba down + Den, 3 bd 1 ba up, and plenty of off street parking (honestly you can build another unit on the property, plus two city owned lots on both sides that the city will attached to the property for only $100-150 each, but must be adhered to current parcel and not to be sold separately. I have not done this yet because I do not plan to develop the parcels and do not want to accrue more landscape maintenance cost)

Rents: DN: $900 - UP: $763; both CMHA tenants, DN has been there for two years and CMHA pays the entire amount, UP is an elder woman who pays 50% out of pocket, Section 8 covers rest, and pays on time online, so all payments are automatic each month like clockwork (Total: $1,665)

Rehab scope: Spent over $5,000 on rehab just to satisfy POS inspection which was tedious and nitpicking at the smallest things. Down did not need any work except minor items, UP had all new paint, carpet, appliances, plumbing upgrades, and a few windows. I am actually going to be spending about 1-2k on down unit just to replace her carpet and repaint the place because she is a good tenant.

Property taxes: $2,400 annual (will be appealing this since it is higher than what it should be)

Utilities: I allot $200 per month, yet to exceed that (Only pay for water and sewer, trash is included in Property Tax)

Maintenance: $100 allotted, yet to exceed ($80 for lawn mowing from Spring to Fall (bi-weekly), and winter up to $100 for snow plow)

Offering: $87,500 (20% down)

Terms: 72 months (30 year Amortized)

Interest: 6.5%

Payments: $1,369.63 per month

Additional Comments: This is a very solid property that is brick exterior with tuckpoint done a few years back. It has a lot of potential for more development through acquiring two adjoining parcels. I can already see both tenants staying there for many years to come as long as their Section 8 vouchers continue. Very minimal repairs (We get maybe 1 call every 3-4 months and it is always something minor), absolutely no deferred maintenance.

Once again, would you do these deals on these terms? Of course monthly payments can be lowered with higher down payments.  

Originally posted by @Henry LiChi :

Hi All,

I just wanted to get a quick read on a scenario and a general opinion if you would do the following deals. I am contemplating on selling two of my properties via a land contract/owner financing. This is purely for analysis sakes and I will not reveal actual addresses but will give as much details as possible. Both properties, I have spent a lot rehabbing and are all up to date on MEP systems, all repairs made, fully occupied with great tenants and pays on time, and absolutely no deferred maintenance. It is truly a turnkey that is ready to be turned over to investors. I have updated these properties to be bright, modern, and comfortable.

Deal 1:

Location: Central Cleveland 44105

Grade: Class C Neighborhood

Property Details: Duplex with 2 bd 1 ba down, 3 bd 1 ba up, and an enclosed 2 car garage

Rents: DN: $750 - UP: $750 Garage: $50 per month to UP tenant ($1550 per month total)

Rehab scope: Spent over $13,000 on rehab to make this place shine. New paint, water tanks, one furnace (other was still working fine), new flooring and carpet throughout, new doors and hardware, fixed all plumbing issues, updated electrical, and new appliances for both units.

Property taxes: $1,100 annual

Utilities: I allot $200 per month, yet to exceed that (Only pay for water and sewer, trash is included in Property Tax)

Maintenance: $100 allotted, yet to exceed ($70 for lawn mowing from Spring to Fall (bi-weekly), and winter up to $100 for snow plow)

Offering: $67,500 (10% down)

Terms: 72 months (30 year Amortized)

Interest: 6.5%

Payments: $1,188.64 per month

Additional Comments: This property gets a ton of interest because it is the nicest and best looking property in that neighborhood. Looks very unique and modern on the outside with updated Vinyl siding and form that sets it apart from typical Cleveland duplexes.

Deal 2:

Location: Maple Heights, OH 44137

Grade: Class C+ Neighborhood (More suburban)

Property Details: Duplex with 2 bd 1 ba down + Den, 3 bd 1 ba up, and plenty of off street parking (honestly you can build another unit on the property, plus two city owned lots on both sides that the city will attached to the property for only $100-150 each, but must be adhered to current parcel and not to be sold separately. I have not done this yet because I do not plan to develop the parcels and do not want to accrue more landscape maintenance cost)

Rents: DN: $900 - UP: $763; both CMHA tenants, DN has been there for two years and CMHA pays the entire amount, UP is an elder woman who pays 50% out of pocket, Section 8 covers rest, and pays on time online, so all payments are automatic each month like clockwork (Total: $1,665)

Rehab scope: Spent over $5,000 on rehab just to satisfy POS inspection which was tedious and nitpicking at the smallest things. Down did not need any work except minor items, UP had all new paint, carpet, appliances, plumbing upgrades, and a few windows. I am actually going to be spending about 1-2k on down unit just to replace her carpet and repaint the place because she is a good tenant.

Property taxes: $2,400 annual (will be appealing this since it is higher than what it should be)

Utilities: I allot $200 per month, yet to exceed that (Only pay for water and sewer, trash is included in Property Tax)

Maintenance: $100 allotted, yet to exceed ($80 for lawn mowing from Spring to Fall (bi-weekly), and winter up to $100 for snow plow)

Offering: $87,500 (20% down)

Terms: 72 months (30 year Amortized)

Interest: 6.5%

Payments: $1,369.63 per month

Additional Comments: This is a very solid property that is brick exterior with tuckpoint done a few years back. It has a lot of potential for more development through acquiring two adjoining parcels. I can already see both tenants staying there for many years to come as long as their Section 8 vouchers continue. Very minimal repairs (We get maybe 1 call every 3-4 months and it is always something minor), absolutely no deferred maintenance.

Once again, would you do these deals on these terms? Of course monthly payments can be lowered with higher down payments.  

 Why finance them? You can get those prices in a regular sale. Well the Maple Heights one for sure. The one in 44105 may be a bit tougher because you have priced it well above neighborhood comps. It's never going to appraise at that price. It sounds like you over improved that one. The Maple Heights one would be an easy sale, if I were you I wouldn't take on additional risk by financing that one. Just get your money and be done.

@James Wise

Thanks for your input.  I'm willing to owner finance them out to get interest over the 6 year period while trying to get some more investors or new investors into the industry by taking advantage of an owner financed deal instead of a conventional bank loan.  With a 6.5% interest and 30 year Amortization, I will make substantially more than I would if I was to sell it now.  I don't need the equity now so I don't have a desire to sell it outright.  True the 44105 one may be over valued at that price, but once again, I am taking the risk of owner financing it so I want to get more than selling it outright.  It may not get appraised for such, but if the numbers make sense and if I am the one that is providing the financing, it does not need to get appraised.  

Originally posted by @Henry LiChi :

@James Wise

Thanks for your input.  I'm willing to owner finance them out to get interest over the 6 year period while trying to get some more investors or new investors into the industry by taking advantage of an owner financed deal instead of a conventional bank loan.  With a 6.5% interest and 30 year Amortization, I will make substantially more than I would if I was to sell it now.  I don't need the equity now so I don't have a desire to sell it outright.  True the 44105 one may be over valued at that price, but once again, I am taking the risk of owner financing it so I want to get more than selling it outright.  It may not get appraised for such, but if the numbers make sense and if I am the one that is providing the financing, it does not need to get appraised.  

It sounds as though we both agree that it's overpriced.  You need to think about the risk you take on doing this.

On top of the overpricing issue buying a property amortized over 30 years with a 6 year call is expensive and only attractive to someone who has no other method of financing this property. So you have an overpriced property that will only be attractive to novice investors who have no money or knowledge that their financing is terrible. This buyer is also likely very inexperienced at landlording / property management in general....What is your exit strategy here? When you finance a deal your success is dependent upon your buyer's success. In this situation your buyer will probably fail and run the house into the ground leaving you to pick up the pieces later. You haven't exited until you get all of your money. By financing it you are still very much in the game but have given control to someone who probably shouldn't have control.

@James Wise

This is the exact input I was looking for and understand what others think.  I am just putting a scenario out there and appreciate your input.  I have no desire to sell these right now since they are cash flowing like crazy and I own them both free and clear unless a real good offers comes.  I'm just thinking in a few years down the road what scenarios can I play out.  And I do understand all the risk involved in owner financing it out, but that is my niche that I do very well in.  

@Henry LiChi

The biggest problem I see, if I added correctly, is the investors expenses exceed the gross rents every month. 

The Maple Heights property looks like the monthly expenses are $1,869.63 according to your numbers and the gross rents are $1,663. That is not an investment for the person buying the property. Maybe for someone who can't get financing this could be "a way" to start investing in that market, but they would be negative $14,877.36 if everything went exactly right and rent stayed the same over the 6 years. Plus all the interest that accrued on the property during that time if they had a period of vacancy that was not planned for. 

The exact amounts are obviously subject to changed because the future is always unclear. However, I would find it hard to believe that anyone that has basic knowledge of income vs expenses would think this would be a good deal. 

It would be a great deal for you though. 

@Kristopher Hanks

Thank you for your input.  Always appreciate the BP community for opening my eyes to a few things I didn't see.  That's correct, I should structure the deal where the buyer actually has positive cash flow even if it is a slight amount.  Deal 1, I currently net cash flow over 900 per month after saving for vacancy, repairs, and capex, property management, insurance, and taxes. As long as the monthly payments can be sub 900, it may be workable.  Say we lower the purchase price to 60000 and require a 20% down, so a 48000 loan.  Over 6 years, that's a $784 per month loan payment.  It's not much cash flow, but the property will be owned free and clear after 6 years.  Similar component can be worked out for Deal 2.  It's just tailoring it to make it work for the buyer.  

I don't understand your math. For the first deal 67.5K with 10% down payments amortized over 30 years would be a loan of $60.75K with payments of $384 per month to you with a 6 year balloon payment.  I believe you are using a loan calculator with 6 year term instead of a mortgage calculator with a 30 year amortization table. 

Most investors want cash flow now, not ownership in 6 years. 

The question you should be asking is what is the best return on your equity factoring risk. You could sell, cash out refi or HELOC , etc. and keep the money moving into new properties. If you want to be a hard money lender then sell and start lending.

Originally posted by @James Wise :
Originally posted by @Henry LiChi:

Hi All,

I just wanted to get a quick read on a scenario and a general opinion if you would do the following deals. I am contemplating on selling two of my properties via a land contract/owner financing. This is purely for analysis sakes and I will not reveal actual addresses but will give as much details as possible. Both properties, I have spent a lot rehabbing and are all up to date on MEP systems, all repairs made, fully occupied with great tenants and pays on time, and absolutely no deferred maintenance. It is truly a turnkey that is ready to be turned over to investors. I have updated these properties to be bright, modern, and comfortable.

Deal 1:

Location: Central Cleveland 44105

Grade: Class C Neighborhood

Property Details: Duplex with 2 bd 1 ba down, 3 bd 1 ba up, and an enclosed 2 car garage

Rents: DN: $750 - UP: $750 Garage: $50 per month to UP tenant ($1550 per month total)

Rehab scope: Spent over $13,000 on rehab to make this place shine. New paint, water tanks, one furnace (other was still working fine), new flooring and carpet throughout, new doors and hardware, fixed all plumbing issues, updated electrical, and new appliances for both units.

Property taxes: $1,100 annual

Utilities: I allot $200 per month, yet to exceed that (Only pay for water and sewer, trash is included in Property Tax)

Maintenance: $100 allotted, yet to exceed ($70 for lawn mowing from Spring to Fall (bi-weekly), and winter up to $100 for snow plow)

Offering: $67,500 (10% down)

Terms: 72 months (30 year Amortized)

Interest: 6.5%

Payments: $1,188.64 per month

Additional Comments: This property gets a ton of interest because it is the nicest and best looking property in that neighborhood. Looks very unique and modern on the outside with updated Vinyl siding and form that sets it apart from typical Cleveland duplexes.

Deal 2:

Location: Maple Heights, OH 44137

Grade: Class C+ Neighborhood (More suburban)

Property Details: Duplex with 2 bd 1 ba down + Den, 3 bd 1 ba up, and plenty of off street parking (honestly you can build another unit on the property, plus two city owned lots on both sides that the city will attached to the property for only $100-150 each, but must be adhered to current parcel and not to be sold separately. I have not done this yet because I do not plan to develop the parcels and do not want to accrue more landscape maintenance cost)

Rents: DN: $900 - UP: $763; both CMHA tenants, DN has been there for two years and CMHA pays the entire amount, UP is an elder woman who pays 50% out of pocket, Section 8 covers rest, and pays on time online, so all payments are automatic each month like clockwork (Total: $1,665)

Rehab scope: Spent over $5,000 on rehab just to satisfy POS inspection which was tedious and nitpicking at the smallest things. Down did not need any work except minor items, UP had all new paint, carpet, appliances, plumbing upgrades, and a few windows. I am actually going to be spending about 1-2k on down unit just to replace her carpet and repaint the place because she is a good tenant.

Property taxes: $2,400 annual (will be appealing this since it is higher than what it should be)

Utilities: I allot $200 per month, yet to exceed that (Only pay for water and sewer, trash is included in Property Tax)

Maintenance: $100 allotted, yet to exceed ($80 for lawn mowing from Spring to Fall (bi-weekly), and winter up to $100 for snow plow)

Offering: $87,500 (20% down)

Terms: 72 months (30 year Amortized)

Interest: 6.5%

Payments: $1,369.63 per month

Additional Comments: This is a very solid property that is brick exterior with tuckpoint done a few years back. It has a lot of potential for more development through acquiring two adjoining parcels. I can already see both tenants staying there for many years to come as long as their Section 8 vouchers continue. Very minimal repairs (We get maybe 1 call every 3-4 months and it is always something minor), absolutely no deferred maintenance.

Once again, would you do these deals on these terms? Of course monthly payments can be lowered with higher down payments.  

 Why finance them? You can get those prices in a regular sale. Well the Maple Heights one for sure. The one in 44105 may be a bit tougher because you have priced it well above neighborhood comps. It's never going to appraise at that price. It sounds like you over improved that one. The Maple Heights one would be an easy sale, if I were you I wouldn't take on additional risk by financing that one. Just get your money and be done.

 Hi James,

What trend are you seeing with the negative population numbers in Cleveland? Are there any economic plans in the pipeline for Cleveland?

I look forward to hearing from you. 

Originally posted by @Erin Elam :
Originally posted by @James Wise:
Originally posted by @Henry LiChi:

Hi All,

I just wanted to get a quick read on a scenario and a general opinion if you would do the following deals. I am contemplating on selling two of my properties via a land contract/owner financing. This is purely for analysis sakes and I will not reveal actual addresses but will give as much details as possible. Both properties, I have spent a lot rehabbing and are all up to date on MEP systems, all repairs made, fully occupied with great tenants and pays on time, and absolutely no deferred maintenance. It is truly a turnkey that is ready to be turned over to investors. I have updated these properties to be bright, modern, and comfortable.

Deal 1:

Location: Central Cleveland 44105

Grade: Class C Neighborhood

Property Details: Duplex with 2 bd 1 ba down, 3 bd 1 ba up, and an enclosed 2 car garage

Rents: DN: $750 - UP: $750 Garage: $50 per month to UP tenant ($1550 per month total)

Rehab scope: Spent over $13,000 on rehab to make this place shine. New paint, water tanks, one furnace (other was still working fine), new flooring and carpet throughout, new doors and hardware, fixed all plumbing issues, updated electrical, and new appliances for both units.

Property taxes: $1,100 annual

Utilities: I allot $200 per month, yet to exceed that (Only pay for water and sewer, trash is included in Property Tax)

Maintenance: $100 allotted, yet to exceed ($70 for lawn mowing from Spring to Fall (bi-weekly), and winter up to $100 for snow plow)

Offering: $67,500 (10% down)

Terms: 72 months (30 year Amortized)

Interest: 6.5%

Payments: $1,188.64 per month

Additional Comments: This property gets a ton of interest because it is the nicest and best looking property in that neighborhood. Looks very unique and modern on the outside with updated Vinyl siding and form that sets it apart from typical Cleveland duplexes.

Deal 2:

Location: Maple Heights, OH 44137

Grade: Class C+ Neighborhood (More suburban)

Property Details: Duplex with 2 bd 1 ba down + Den, 3 bd 1 ba up, and plenty of off street parking (honestly you can build another unit on the property, plus two city owned lots on both sides that the city will attached to the property for only $100-150 each, but must be adhered to current parcel and not to be sold separately. I have not done this yet because I do not plan to develop the parcels and do not want to accrue more landscape maintenance cost)

Rents: DN: $900 - UP: $763; both CMHA tenants, DN has been there for two years and CMHA pays the entire amount, UP is an elder woman who pays 50% out of pocket, Section 8 covers rest, and pays on time online, so all payments are automatic each month like clockwork (Total: $1,665)

Rehab scope: Spent over $5,000 on rehab just to satisfy POS inspection which was tedious and nitpicking at the smallest things. Down did not need any work except minor items, UP had all new paint, carpet, appliances, plumbing upgrades, and a few windows. I am actually going to be spending about 1-2k on down unit just to replace her carpet and repaint the place because she is a good tenant.

Property taxes: $2,400 annual (will be appealing this since it is higher than what it should be)

Utilities: I allot $200 per month, yet to exceed that (Only pay for water and sewer, trash is included in Property Tax)

Maintenance: $100 allotted, yet to exceed ($80 for lawn mowing from Spring to Fall (bi-weekly), and winter up to $100 for snow plow)

Offering: $87,500 (20% down)

Terms: 72 months (30 year Amortized)

Interest: 6.5%

Payments: $1,369.63 per month

Additional Comments: This is a very solid property that is brick exterior with tuckpoint done a few years back. It has a lot of potential for more development through acquiring two adjoining parcels. I can already see both tenants staying there for many years to come as long as their Section 8 vouchers continue. Very minimal repairs (We get maybe 1 call every 3-4 months and it is always something minor), absolutely no deferred maintenance.

Once again, would you do these deals on these terms? Of course monthly payments can be lowered with higher down payments.  

 Why finance them? You can get those prices in a regular sale. Well the Maple Heights one for sure. The one in 44105 may be a bit tougher because you have priced it well above neighborhood comps. It's never going to appraise at that price. It sounds like you over improved that one. The Maple Heights one would be an easy sale, if I were you I wouldn't take on additional risk by financing that one. Just get your money and be done.

 Hi James,

What trend are you seeing with the negative population numbers in Cleveland? Are there any economic plans in the pipeline for Cleveland?

I look forward to hearing from you. 

 Many would argue that there is a pretty considerable economic revival happening in the Cleveland market right now. Tons of articles on that out there on the net. Overall the entire Midwest region has a net population loss and the sunbelt states typically see a net gain. All of this is outside of my control & scope of expertise. I focus on what I can control, hence while I like investing Real Estate as opposed to the Stock Market.