Is seller financing too risky for a first-time home buyer?

Question

Hey guys, so I am 100% determined to get my first house in the first half of 2017. This will be my first house. I'm a small business owner (self-employed) and won't qualify for standard bank loans most likely. Also, frankly, I'd like to avoid banks entirely, so I've been studying seller financing a lot.

Here's my plan: I intend on treating this first house as a total investment, but will also be living in it for 2-3 years and house hacking by renting out two of the bedrooms. I also plan on moving my business into this house to convert it into a home business, at least for a while. While living/working in the house I will be working on it/upgrading it to gain equity and hopefully the house will appreciate (in the Portland OR metro area it should).

In order to find the perfect house with seller-financing available, I'm studying hard so that I can pretty much mimic what investors do with these kind of properties by sending out mailers/yellow letters to get a bunch of calls/responses and find the perfect location in the Portland metro area. Right now I'm looking at Subject To's or wraps as the most viable route.

Here's my question: are Subject To's/wraps/seller-financing deals too risky for a first time home buyer/investor?

I've heard of Due on Sale clauses, people potentially wanting to get out of the mortgages that you start paying for in a Subject To... basically I've heard of a few scenarios that sound a little scary that could screw up the entire plan. Are these rare events? Is there anything I should be aware of as real risks before going this route?

To summarize: I'm buying my first house in the first half of 2017. I'd like to buy it with seller-financing (Subject-To's/Wraps) and treat the process like an experienced investor would to make sure I find a good deal. I'll be living in this house for 2-3 years most likely and will be running my business from the house as I house hack it by renting out two of the rooms to help offset monthly expenses. While I live and work in this house I will be working on it regularly to increase the value of the home.

Any feedback here is greatly appreciated guys. I'm pretty much dead set on seller financing as my path now, and it's refreshing to finally nail down a path to take... but now I need to navigate the obstacles and pitfalls on this path so I'm not traversing it in the dark. Thank you to anyone who provides some feedback on my ideas!

Bill Gulley · Answer

Chris, have the property inspected as a newbie in RE, get an appraisal or a BPO at least.When seller financing is offered by an investor, they are usually asking too much, financing doesn't add value to real estate, the other issue is they usually know if there is a financing issue, defects that won't fly conventionally. This also takes you into the area of the predatory dealer, be careful when financing is offered by a seller. As a buyer, you should learn how to present seller financing, if you bring up the subject those clouds over what might have been aren't usually there, it was your idea. Just keep reading, good luck :)

Neal Collins · Answer

Chris Morey Make sure you read the loan docs on the underlying mortgage. It wouldn't be fun to wrap a note that has an adjustable rate or any other surprise. Do your homework so you understand what responsibilities will be and help to mitigate the risk. Also it is entirely not true that seller financing comes with higher interest rates. Rates are negotiable.

Mark Holencik · Answer

I only ask if they will finance if they do not have a mortgage. There are always exceptions. Once I bought a property with an existing.I had already bought property off of him. We agreed on a 17 agreement of sale. That is what was left on the existing mortgage. I made the mortgage payments with my checks.

Chris M. · Answer

Thanks, @Neal Collins, you're absolutely right: I'll need to do a lot of homework on the mortgages, taxes, potential fees etc. for any given property.Another big reason I'm doing this is that there are a lot of attractive reasons to go from having an external office for my business (which is currently the case) to having an in-home office that would be tax deductible and essentially give me a discount on my house payment.However, another consideration that I must be careful of is that with seller-financing, a seller can sell the house as-is with possibly a huge number of repairs/some deeply fundamental repair needed. I'm assuming house inspections are even more important with seller-financing deals?

Bill Gulley · Answer

Dang key word alerts, usually it's the questions that have already been answered a hundred time on here, nothing unique about a circumstance just the same general "too risky" "due on sale" stuff.Go to my profile page, search my posts in the past 12 months, finance in the title or text, wrap, seller financing, installment sale, Sub-2, will all bring you on target. The due on sale is real, it happens, doesn't matter if it's 1 out of 10,000 if you're the one, you can't predict that, so in every deal you need an exit, sell it if you can't pay it off. Buy it right or you'll lose money selling it. Good luck :)

Joe Ausmus · Answer

I haven't done one of these deals myself, but I am also researching it for future purchases. But from what I can tell, the terms are completely negotiable, and the larger the down payment you can bring to the table, the more leverage you will obviously have. Good luck on your deal!Joe

Ken Teng · Answer

1, Seller financing has higher rates, ~7% or higher. Be ready to handle that. I guess in Portland, this may not work out.2, Usually the problem is how to find those motivated sellers that are willing to do seller financing. You can start your marketing now, e.g., direct mail.