Can anyone offer some in sight about owner financing?

Question

Hello, I am new to real estate investing. I have a basic knowledge of flipping, wholesaling and renting. But i recently came across a different type of investing strategy called owner finance. From my understanding so far, and i might be wrong, the buyer sends the owner a check/payment for the property and owner finances the property while the buyer decides what he'd to do with the propery wether it be flipping or renting etc. And after a certain time frame, that was negotiated by the buyer and seller, the buyer is required to purchase the property. If im correct about the general concept of how it works, then wouldnt that be the same as renting or lease to owning the property?? Again my basic understanding of owner financing could be completey wrong. Any insight or info on how owner financing works, when the best time to use owner financing and the pros and cons to this investment strategy, would be appreciated! Thanks!

Paulina Chase · Answer

I am also a newbie investor. I have two owner carry properties, and soon to have a third.

First of all my properties are free and clear.

My first property was my personal residence, I decided to move, found a buyer, then worked out a contract with the buyer. Set up an escrow account. I learned from this first one to have the escrow company collect and pay property taxes. The escrow company actually direct deposits my money into my checking account.

My second property I asked the owner to carry contract for me, I payed the escrow company, we made improvements. Again decided to move again. We listed through a realtor, listed as owner carry made sure the down would cover my escrow pay off and closing costs. This property is now free and clear, I have the escrow company deposit money into my checking account

My third I bought through an auction company, paid cash. I did some repairs, listed it through craigslist and then finally hired a realtor to help with the property. We have it under contract. Will be closing it within the week and again I will have the escrow company deposit the money into my account.

I love owner carry!!!

Jim Pellerin · Answer

Owner financing is a financing strategy and not an investment strategy. Basically, the owner is acting like a bank and holding a mortgage on the property. Usually an owner that does owner financing is motivated so you should be able to get better terms than at a bank or other lender. I have done owner financing at 0% interest. You can also get owner financing a s a first or second or other mortgage position.

Dave Passey · Answer

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!

Alessandro Storniolo · Answer

Thanks for the replies! Have a much better understanding of what buying a owner finance house takes/means!

Christopher Phillips · Answer

@Alessandro Storniolo

What you're referring to is lease with an option. You rent the property with the option to buy it later at a predetermined price. Usually within 2-3 years depending on the option. There is usually an option renewal clause. The tenant doesn't own anything until the option is exercised and they actually buy the property.

Owner financing is the owner acting as the bank with a promissory note with the terms of payment (principal amount, interest rate, number of months). In this case, the buyer gets title at the closing and the note is recorded at the county clerk's office like any other type of financing.

Can anyone offer some in sight about owner financing?

Can anyone offer some in sight about owner financing?

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