Seeking Advice on Owner-Financed Properties Under $50k & Creative Refinancing Strateg

[Eduardo Cambil]

I'm Eduardo, and I'm working with a Texan business partner to set up an LLC focused on acquiring niche, owner-financed properties under $50k. Our strategy is to secure these deals with only a $5,000 down payment on a $50k property, and then quickly refinance the balloon payment using the rental income. We aim to scale rapidly—targeting around four homes per year—so we’re looking for the most efficient way to do this.

Here’s a breakdown of our situation and some specific questions:

1. Owner Financing & Balloon Payments:

   • We’re targeting properties priced around $50k with owner financing, requiring only about a $5,000 down payment.

   • In these deals, there is usually a balloon payment due after a set period (e.g., 5 years). What are typical monthly payment structures under these terms? For example, will we be paying around $600+ per month until the balloon payment comes due, or can the seller structure the note more like a conventional loan (e.g., with lower monthly payments based on a longer amortization schedule)?

2. Refinancing the Balloon Payment:

   • Once the property is acquired and rented out (targeting around $850 per month in rent), is it feasible to refinance the balloon amount with a bank using just the rental income?

   • Or would we need to consider alternative financing options, such as DSCR loans from private lenders offering 30-year terms?

   • What challenges might we face if the rental income is our primary (or sole) source of repayment when refinancing?

3. Scaling Strategy & Documentation Requirements:

   • We want to scale quickly by buying multiple $50k properties. Given that many DSCR loans have minimum loan amounts around $75k and require significant documentation, what are our best options to finance these smaller deals in bulk?

   • Are there creative financing strategies or lenders that have successfully worked with similar scenarios and minimal down payments (around $5,000 per property)?

4. Best Practices & Alternative Approaches:

   • What have been your best practices for negotiating owner-financed deals with balloon payments?

   • Are there ways to structure the financing or the LLC to make refinancing easier, especially if our rental income is our only income source?

   • We’re also open to any suggestions on alternative strategies or improvements that could make our approach more effective and less documentation-heavy.

Our goal is to acquire owner-financed properties under $50k with minimal upfront cash, rent them out, and then refinance the balloon amounts to secure long-term, lower-cost financing. We’re seeking advice on how to refine this strategy, overcome potential challenges, and streamline the process so we can scale efficiently.

Thank you in advance for any insights, strategies, or resources you can share!

Best regards,
Eduardo

Feel free to comment or message me directly with any advice or questions regarding our strategy.

[Louis P Lessor]

Great strategy but where are you finding these types of deals?

Also what type of tenants are you going to be getting in for that price?