How to properly setup an owner financing situation.

Question

Hi everybody from bigger pockets.

I am looking to buy my first piece of property. I have my eye on a specific deal. It is a plot of land that is on the market for “cash only” .

The reason why the property is not able to be financed is because of the type of dwelling unit on the property. In my state lenders will not loan on mobile homes built before 1976. They are very strict about this. The current house on the property was manufactured before that year and the bank will not finance it for that very reason.

I would like to talk to the owner/ real estate agent about owner financing. I have some money I could use for a down payment. My question is what is the smartest way to go about the situation?

Should I;

Bring it up with the realtor  representing the property and see what he has to say about the idea?

Attempt to contact the owner himself and see if he would interested in the idea of owner financing with this property?

Talk to a lawyer/real estate agent to represent me and meet with his real estate agent/ owner himself?

What could you recommend?

Bryan Scott · Answer

If the property is listed, you have to know that the agent's primary interest is in how he gets paid.  If he/she has done the legwork to get the listing posted, including media, etc., then they deserve a paycheck, the amount of which will come out of whatever down-payment is paid.  The balance not used for selling costs, will represent the only skin you have in the game to the seller.  These deals are solely dependent upon seller motivation.  If the property has been on the market for too long, time can help with this motivation.  If the property is vacant, unanswered by a sale, or rent, then this too helps the seller's motivation to consider creative financing.

In order to "calibrate" your offer, you should understand the seller's pain points if possible.  As Michael Lee mentioned, the presence of a mortgage, or not, will be a good start.  Looking at public records for unpaid taxes, liens, or other encumbrances, etc., should be investigated (open prelim title with a title co and have them run prelim title report for about $10 to find out).

Will you offer on your own, or are you represented by a buyer's agent?  If you are represented, this certainly provides you some protection, but also could cost the seller more commission that might otherwise be negotiated out of the deal between seller and listing agent.

If you do not have an agent who understands these types of transactions, use a real estate attorney!  Additionally, if you get under contract, just make sure you use a qualified intermediary to handle the money after closing; loan payments & pay the bills (property taxes, etc.) and make certain your closing agent, or real estate attorney files the transaction properly with the county of record (all protection for you and your deal).

Michael Lewis Lee · Answer

Hello Isaac!  I have several thoughts on your situation.  I have been a licensed real estate broker in Texas for about 30 years and during that same time I was a project manager that did several things including owning my own business.  First off, most of your plans are OK but I would never hire an Agent to buy and know that the starting price is usually retail and not discounted.

The owner maybe motivated and may be able to dump that Agent and that might help find out the truth and find out if they have a loan and if it’s current on the payments.  Also, find out if he/she will tell you about what the loan(s) interest rate is and  is it  low enough to make a spread on renting (if in good shape) while Troy are trying to sell.

You could offer to make the payment to make it current and possibly keep them from filing bankruptcy and salvage their credit.  If they have another problem, try to help them solve.  Depending on their down payments you will have to, a offer an outright sale, do it “subject to” where they keep the title until any loans are paid off.

If their down payment is about 10%, you could offer a “lease option”where they keep the title until you resell and close. or a “wrap” or a combination of those and you will pay them their price at the closing of your sell within 2 years.

You can offer to make their debt payments on time to assure your deal and close.  Do not worry about the “due on sale” clause but if it does exist tell them it rarely happens as loan is kept current

You can cover all maintenance when under $300.  Also, make sure they know about the capital expenses and how they would effect them and anything your forced to pay comes against their price.

Michael Lewis Lee · Answer

Hello Isaac!  I have several thoughts on your situation.  I have been a licensed real estate broker in Texas for about 30 years and during that same time I was a project manager that did several things including owning my own business.  First off, most of your plans are OK but I would never hire an Agent to buy and know that the starting price is usually retail and not discounted.

The owner maybe motivated and may be able to dump that Agent and that might help you find out the truth and find out if they have a loan and if it’s current on the payments.  Also, find out if he/she will tell you about what the loan(s) interest rate is and  is it  low enough to make a spread on renting (if in good shape) while Troy are trying to sell.

You could offer to make the payment to make it current and possibly keep them from filing bankruptcy and salvage their credit.  If they have another problem, try to help them solve.  Depending on their down payments you will have to, a offer an outright sale, do it “subject to” where they keep the title until any loans are paid off.

If their down payment is about 10%, you could offer a “lease option”where they keep the title until you resell and close. or a “wrap” or a combination of those and you will pay them their price at the closing of your sell within 2 years.

You can offer to make their debt payments on time to assure your deal and close.  Do not worry about the “due on sale” clause but if it does exist tell them it rarely happens as loan is kept current

You can cover all maintenance when under $300.  Also, make sure they know about the capital expenses and how they would effect them and anything you are forced to pay comes against their price (or reduces it).  If they need cash, you may have to get another loan to pay that cash which might effect their sales price.

Check out the demand in that area and how much work it would take to lease it or sell.  That is about all I have to say.  Good luck to you!