What are the Benefits of Owner Financing?

We love these deals and we think you will too. Here are some of the biggest benefits of owner financing deals.

Owner financing deals are one of our favorite strategies because they are so lucrative and simple. Yet people are constantly telling us that owner financing deals are not possible in their area, or that sellers simply aren't interested in them.

It's time to set the record straight. Let's take a look at what an owner financing deal is, why sellers would want to utilize them, and how we determine payments. At the end, we'll show you some numbers that will truly make your hair stand up and show you why these deals are well worth your time and attention.

What is an owner financing deal?

To put it simply, an owner financing deal is when the seller (the homeowner) finances the deal instead of a mortgage lender or bank. The buyer makes a down payment and then regular payments until the amount is paid in full. So it effectively functions just like a regular mortgage would, except the seller is the lender and there is often little to no interest involved. When I say “buyer” above I mean us as the investor.

Owner financing can be done many different ways. We focus on a niche within a niche of owner financing, meaning when we structure owner financing deals, we work with homes that are free and clear and we always structure principal only payments. That means no interest—the entire payment is going toward paying down the principal.

Why would a seller want to do this?

People often ask us why a seller would be motivated to structure a deal like this instead of selling their home conventionally. Well, it's important to first understand that about one third of the homes in the U.S. have no underlying debt. They are owned free and clear.

When someone owns a home free and clear, they're not interested in low-balling. They're often much more open to creative financing to get the full return on their investment, and they're willing to wait to get it. It also provides consistent cash flow for the seller throughout the length of the term, which is very appealing to some.

With so many free and clear homes available, we regularly find sellers who are open to this type of deal across the country.

How do you determine payments?

Because there's no traditional mortgage and no institutional lender involved in an owner financing deal, it might seem difficult to figure out the best way to structure payments. But it's really quite simple. Here's how we do it…

First, we determine what we're willing to pay as a purchase price in our mind from a rent to own standpoint. Then, we discuss with the seller and determine what they want. We come to an agreement on price, then use a mortgage calculator to determine what a tenant buyer would be paying through a conventional bank loan if they were ready to do that.

From there, it's just a matter of creating our spread. We determine a monthly payment based on the calculation and adjust it so that we're getting some cash flow on our end. And because the payments are principal only—which we benefit from—the numbers start to add up quickly.

3 simple rules for mind-blowing deals

There are three simple rules you can follow to ensure that every owner financing deal you take on is incredibly lucrative.

When you find a home that is $200,000 or more and you can structure a 4 year term (or longer) with principal only payments of $900 (or higher)... You will have a six-figure deal. Every time.

It's really that simple. And if you think you can't do these deals, you're limiting yourself! We do 25 to 30 deals each month with our students and three to five in our own buying and selling business. About one third of all those deals are owner financing. You do the math!

Here's my question to you: How many of those deals would you need to make you happy? Or to get you out of your job? Or to create generational wealth?