All Forum Posts by: Dave Passey

You have the general idea of it down. When you are buying the house with seller financing you have already purchased the house though. The deed is in your name. This is the main difference with the rent or lease to own options. The seller is just the mortgage holder. In many owner finance deals, the seller will require a balloon payment at some future date. That may be 5, 10, 15 years or whatever you two decided when you bought the house. They may also not require a balloon payment and you can go the full term of the loan if you would like. 

I have used this strategy in various situations, but most of the time, if the seller is willing to do it, then I will set it up with owner financing because the terms of the loan and the deal are usually more favorable to me than if I were to get some other form of financing. 

Pros: Usually less expensive than other lending, can have flexible terms, can be little to no money down.

Cons: Make sure you have cash reserves if you are doing something with the house other than just rehab and flipping it. If you are putting a tenant in there are selling it to someone else, the you need to be able to cover the payments if the tenant doesn't pay for a while. This is where a lot of people get in trouble because they look at it as a sweet little to no money down type deal and haven't planned for any issues. 

Hope that helps!

@Simone Nicholas

Taking $50k out is no problem if the numbers line up. I think you will have a tough time finding a lender that is willing to only let you have 18% equity. That would be them having less equity than a conventional mortgage. I'm not saying it is impossible, only that I think you will have a tough time doing it. We usually try to make our numbers hit 75% so that there is still 25% in the property. It makes our lenders happy to work with us again because we are making sure that the deal is easy for them to approve. 

If your $538 a month is actual cash flow then I am happy with that. The 2% rule is a rule of thumb, and a lot of people really do the 1% rule. Especially since you would be new construction, I think it would be fine. 

The 6 month "seasoning" period will be up to the lender that you do the refi with. They decide what they are willing to do with that. I've had some lenders be less and some lenders be more.

I would start here

@Jeremy Johnson 

I can see a number of things that you are missing, but the biggest one that will hurt you a lot later on is that it doesn't seem like you understand what cash flow really means. It doesn't appear like you are making the necessary deductions for taxes, insurance, maintenance, CapEx, vacancies, and property management. But at a $192k mortgage ($240k - 20% down, like what you said if you fixed nothing) you aren't cashflowing $1000 even with taxes calculated at $0 (which is obviously not true).

In your other scenario your TOTAL RENTS could be pushing $4000 a month, but that is not your cash flow. At a loan of $240k (which is 80% of your max ARV of $300k) your monthly costs and expenses are going to be at least $2600 before you add in taxes. Your purchase price with only $80k of repairs and assuming no other costs like closing or money lending fees could be up to $145k to have to be at the $225k all in price. If your repairs are $150k then your purchase price could be $75k.

This is a very dumbed down version because I am not including a lot of fees and costs that are associated with closings, but you get the idea. I hope something in there is able to help.

@Ari Kapel I just make sure that they have a bank account and then, depending on the amount, I can do an online bank to bank transfer or I can go to the closest location of their bank and deposit into their account. I have gone so far as to make them get a bank account at my bank (Wells Fargo) to make it easier for me. It may be a little selfish, but they like to get paid quickly and I tell them that will be the fastest way.

@Caleb Heimsoth Out of the last 25 months, only 1 unit was vacant for 1 month equals 99% occupancy.

@Hunter Eidmann I don’t know of websites that show where renting is not available but I don’t know that sometimes HOAs will not allow renting or other covenants in the areas. I was talking to a potential seller about a week ago that owns half of a duplex, but their covenants don’t allow for renting. My solution to that would be to do some sort of seller finance deal to a buyer and still be able to make monthly income off of a house that I can’t rent.

@Sean McCluskey

The quality of rehab to get the ARV depends on the comps. It sounds like the comps in Alexander's market don't need a ton of work, like he said it is "lipstick" on a pig. Are you still going to be able to rent it for what you think you can if you don't do those things? If not, then maybe more needs to be done. If your house does not look like the comp houses then your house is not comparable to the others and won't appraise at the same value.

@Madona Spence You are being too vague.