Owner Financing, Good Deal?

Question

I am new to real estate investing! My first move was a cash out refinance of my primary residence. I was able to get 140k without raising my monthly payment.

Over the last two months I have been talking about what I would like to do with real estate and an associate sent a friend of his my way. He has a home in a really good area, in between elementary and jr. high schools, good access to amenities, and a quiet, working class neighborhood. There is room for appreciation (I think) but home prices seem high here in Utah. He said he is interested in selling his home by owner for what he thinks is about 30k under value.

This would be my first deal but when trying to make any numbers work it would not cash flow, it could be possible to make some money reassigning the contract if I knew someone willing to purchase but have never been associated with a wholesale.

I thought about buying it myself. If I bought it at the 390k he is asking and put up to 10k in cosmetic upgrades (assuming he is honest about the current condition) it could make sense. Similar homes in the area are selling or valued at 420-455. I am going to see the home on Tuesday with a friend that is an agent so he can tell me what people are looking for when buying and to get a better senses of comps.

My concerns are the amount of margin that will be consumed by financing the property as well as capital gains taxes and possible holding costs. I was also wondering with being in a "buyers market" who is typically paying for the closing costs on a traditional sale, the buyer or the seller? I think the seller paid when I purchased my first home.

The extent of my financing experience is the first FHA purchase on my home and a few "Smart Refinances" and a traditional cash out refinance all on the same home.

Can anyone help explain if there is a way for my to offer the seller options that could make this a deal?

Also, I know this would be a "flip" and is somewhat controversial when referring to real estate investing and with that I have a question if it is possible to take any equity from a deal like this and reinvest into a true income property to defer taxes?

Thanks for sharing your knowledge and helping out a rookie in advance!

Colleen F. · Answer

@Matthew O'Dell in todays seller market owner financing on an MLS deal isn't a great idea. I don't believe owner financing is something that is generally in an offer unless it's been discussed or offered by the seller. If you approached an owner about a sale you might ask if they want to owner finance. Owner financing spreads the capital gain for them over time. For a personal deal like the one you originally posted about you could ask about owner financing, it is an off market deal but it is not typical in MLS deals.

Miguel Lopez · Answer

@Matthew O'Dell Never hurts to ask. It isn't the strongest offer in todays market. At the end of the day, it is impossible to guess what the seller wants. I have put several owner finance offers in and have been rejected. I just brush it off and move onto the next.

Miguel Lopez · Answer

@Matthew O'Dell I think this all depends on what your end goal is. Flipping might not be super profitable after realtor fees etc. If you buy and hold, you will most likely not cashflow a ton but will get in on the Utah appreciation. Depending how you do this deal, you might be able to pull it off with little to no money down. Granted, the less money in the deal the less cash flow will be. I'd be happy to brainstorm more about the deal if you'd like!

Colleen F. · Answer

@Matthew O'Dell I am not a flipper although I have flipped a few houses over the years. You have to figure in selling cost including 5-6% relator commission and holding costs. At $4000000 plus holding costs selling at $420000 your relator commission of at least $20,000 will kill any profit and that doesn't account for holding costs. .

Matthew O'Dell · Answer

@Miguel Lopez

Thanks for responding to my question! I'm putting in an offer this afternoon on a buy and hold in the North Ogden area.

My Realtor friend told me it is a poor idea in this market to write an offer with Seller Financing. Is this something you have ever done? Would it be a good idea to still write an offer with Seller Financing in addition to a more conventional offer?

Thank you for responding to my other questions as well, I really appreciate it!

Matthew O'Dell · Answer

@Colleen F.

Thank you so much for taking the time to answer my questions, that means a lot especially with how busy life is.

If you don't mind me asking, you mentioned not doing many flips, if you had the opportunity to purchase this home at about a 30k discount as is or finishing some projects the current home owner started forcing equity and potentially selling at an arv of 450k-470k would you personally consider this deal and if so, how would you take it on?

Thank you again for your time!

Matt

Owner Financing, Good Deal?

Owner Financing, Good Deal?

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