Owner Financing: Yes or No?

[Kyle Buterbaugh]

Hi Everyone,

I am currently in the process of developing an offer to buy a duplex that is for sale by owner. It is listed for $54,900, and I have been number crunching to figure out what is smart for me to offer. 

Now, I asked him about the idea of owner financing at least a portion of the loan. He said it was something he didn't know hardly anything about, but he didn't shoot it down. 

Obviously being a first time investor with not a ton of excess cash at my disposal makes keeping as much money in my pocket a good thing. I am planning on using the profits to continually buy more properties, so that is another appeal to owner financing.

The risks come more into play because a lot of owner financing deals have a balloon or some sort of shorter term life, which leads to either a refinance or a large chunk of money being paid out 5-7 years down the road.

I am seeking some advice on whether to pursue the owner financing option or stick to the conventional mortgage? If you recommend owner financing, how would you recommend setting up a deal to create a win-win for both sides?

Thank you in advance for your advice!

- Kyle

[Nick L.]

Something I do when presenting seller financing offers to free/clear sellers... I will present a low cash offer (some might say low ball), and then I present a much higher seller-financed offer at 0% interest. For example 1 house I bought the 2 offers I presented were...

$25,000 all cash

$60,000 seller financed at $300/month for 200 months

To my surprise, the seller took the $60k over 200 months. Of course he could have negotiated with me for some money down, or a balloon. But he didn't. So now I have this as a rental and I never need to go to a bank for it.

I don't like to assume they want interest or a balloon or a down payment until they bring it up. But be prepared for them to say no to your offer, and then you need to ask questions such as "what if we put in a balloon?" or "what if I put a couple thousand dollars down?"