Owner Financing a Flip

[Brian Orr]

Hey all,

Curious if anybody has experience or advice on this. I'm wondering if I should consider a rent-to-own strategy, or maybe an owner finance strategy for my post-renovation properties. Are these dangerous waters to wade through? Or could I possibly be setting myself up for higher returns in the long run?

[Account Closed]

Owner financing is not anymore dangerous compared to other conventional lending options available.  Owner financing is actually much better because you can determine the rate and other terms directly with the owner.  You don't have a bank holding all the cards in the deck.  Banks don't typically negotiate either.  It's either all or nothing with them.  I private/owner financed all 3 of my investment properties last year and it was the best option for me because all the banks required much higher down payments, higher terms and too many restrictions.  They were a barrier for me rather than a door opener to my opportunities.  To answer your question more fully, yes you could set yourself up for higher returns in the long run.

[Brian Orr]

Thanks @Account Closed... I'm not sure if I expressed myself correctly. I'm talking about after I purchase and rehab the house, as an option for me (as the owner) to finance to the new buyer. that said, I haven't looked into it as a financing option to get myself into more properties - so I will most definitely look into that further.

[Account Closed]

Yes, financing to a new buyer is a great option as well.  You are the lender so you can foreclose on the property if the buyer can't pay the note, and then re-sell it to someone new if that ever occurs.  You also get the monthly interest payments on top of your total sales price so instead of selling a rehab for $100k, you could get $110k or more depending on the rate you work out with the buyer.  It's also a great advertising strategy because buyers love seller financing due the easy transactional process most of the time.  You control the contract so you can make it 1 page, or 50.  It's just a much more customizable process.  There are loan servicers out there as well that can handle the payment collections and tax forms for both the seller and buyer as well so you can put this on auto pilot.

[Brian Orr]

Ah ok so this could be a beneficial strategy! Thanks again for the input I'll talk to my team and see if we can put this together. 

[Bill Gulley]

Brian, Dave is about 10 years behind, he's still in the predatory mind set of charging more for financing and the ability to take it back and do it someone else. Seller financing has been discussed here to great extents as well as the newish Dodd-Frank requirements. As a rehaber, doing construction on a house and seller financing to an occupant, you can't, same goes for any rent to own junk or lease-option to purchase without greater scrutiny than what investor types have done in the past, including last year. 

Before you strike off with an opinion or suggestion from just anyone, you better study the changes, I'm talking federal laws with penalties you don't even want to think about!

Now, if you lived in the home, were not in the business, there are exceptions that allow seller financing. You can seller finance to another investor as a commercial loan, but you're speaking about consumer financing.

As I said, read here on BP, there are a few, not many, who know seller financing as it is required to be done today so be careful about what you read on line. Good luck :)   

[Brian Orr]

Oh that's unfortunate @Bill Gulley. I've done some searching on BP but all I found were posts regarding investors receiving seller financing in order to purchase. I'll keep plugging around to find more information as well as search the dodd-frank. and of course, continue the conversation with my lawyer and accountant.

Thanks for the updated information!

[Jerry W.]

@Brian Orryou have received some great advice, and some VERY DANGEROUS advice here.  @Bill Gulley gave you the great advice.  There is a federal law passed a few years ago in response to blaming lenders for the 2008-2011 crash.  It is called DODD/FRANK and it stinks.  If you build or rehab then owner finance the odds are high you will violate it.  Some of the penalties include them keeping the house and not having to pay you for it.  Sorry to break the bad news.  I guess I don't blame most people for not knowing it, I have not met a local attorney in my town who knows it.  The bankers know it as it has turned their life upside down as well.

[Bill Gulley]

Jerry, thanks, you just beat me. here is your vote (X) no voting window pops up for me!

Not that things have changed, not sure, but go to my profile,  then to my posts, that's probably the best way to find seller financing threads. Only read those from the past couple years, Dodd-Frank had changes so comments prior may not be applicable. Buying as an investor is usually fine, it's the selling side that's a pit of rattle snakes. 

Sorry, but you'll have to mention me to get me to a thread if you want to ask me something, I can't watch the board anymore to see what's being said by who. :) (  :(  )

[Jerry W.]

@Brian Orrthe first time I saw Dodd/Frank mentioned was a post from Bill.  It was very poorly publicized to anyone but the banking industry.

[Rocky V.]

@Brian OrrI just closed another owner financed deal a couple weeks ago.  Make sure you abide by all current rules/laws.  This is not something you want to close yourself.  I go through a title company and their attorneys as well as use a RMLO.  I do like to offer owner financing as I feel it expands my buyer pool.  Best of Luck!

[Lorenzo Hatten]

Could anyone give me insight on what to provide to a private lender for them to make an informed decision?