Owner financing, Rehab, Rent, Refinance- how many have done this?

[Samuel Cervantez]

This came to me after doing some reading on this site but I have really heard if its been done or was it successful. This sounds almost like BRRR but with a twist, no matter any input would be greatly appreciated.

[Steve Vaughan]

Originally posted by @Samuel Cervantez:

This came to me after doing some reading on this site but I have really heard if its been done or was it successful. This sounds almost like BRRR but with a twist, no matter any input would be greatly appreciated.

 I have done this 4 times, with  2 7-plexes and 2 houses.  My first 7-plex guy took a $5k discount on a $148,000 refi.  Not the best discount, but we were facing the balloon deadline anyway and it was better than nothing.

Currently in 'negotiations' with one home seller for an early  payoff discount.  My rate with them is 6% over 24yrs straight am.  It has 22 years left.    I figured an 8% discount to get my 'return' to 8% for the payoff.  I'll be self-funding this 'refi', then I can go to a bank if I want to get cash out later.  

By self-funding the payoff AND getting a $7k discount, I am saving $11,000 in transaction costs. Sounds like a couple months of freedom to me!

What's nice about refinancing owner-financed deals is they will at least consider a discount.  Banks won't/can't!

[Ryan Murdock]

@Samuel Cervantez

I've done it successfully. The seller financed nearly the entire sale price for 5 years and was willing to allow a discount on the pay-off in order for me to refi early. Much less red tape when dealing with an individual lender/seller than trying to modify an agreement with a bank.

[Samuel Cervantez]

@Ryan Murdock @Steve Vaughan how did yall get started with the deal? What kind of paper work was needed to draw it up? Any good articles or threads that cover this? Any information would be greatly appreciated.  

[Ryan Murdock]

@Samuel Cervantez

Full or partial seller financed deals are pretty common. You just need to find a seller willing to do it. It can be mutually beneficial as you don't need a bank and the seller gets an above-market return on his/her money. Any competent real estate attorney can draw up a mortgage document. Pretty simple stuff once you find the right situation.

[Samuel Cervantez]

@Ryan Murdock thank you for your response. So a real estate attorney does the paper work, how much does that usually cost and who pays for it?

[Ryan Murdock]

@Samuel Cervantez The last one I did involved an attorney for the buyer and one for the seller. Total cost with closing was less than $1000. Who pays for it is negotiable. Typically buyer at least pays for closing and often for the mortgage docs to be drawn up as well.

[Samuel Cervantez]

@Ryan Murdock last question, is this how you would draw up a deal for a lease option as well? (using a real estate attorney)

[Ryan Murdock]

@Samuel Cervantez Yes, same principle for lease option. They can easily be prepared by a qualified RE attorney.

[Samuel Cervantez]

@Ryan Murdock thank you for all of the information and the time you took to respond. I read No (and Low) Money Down and it gives lots of great ideas but does really explain how to get started on them. This helps a lot, thank you again...also love your website.

[Ryan Murdock]

@Samuel Cervantez I appreciate the feedback. This is a fantastic site and there are people here with loads more knowledge and experience than me. Keep asking questions and if you haven't already listened to the podcasts I can't recommend them highly enough. Tons of great info there.

[Steve Vaughan]

Originally posted by @Samuel Cervantez:

@Ryan Murdock thank you for your response. So a real estate attorney does the paper work, how much does that usually cost and who pays for it?

 I run my SF deals through my local title co.  They farm out the note and deed of trust drafting to an attorney in their network that does these all the time for about $250.  

If the attorney is also closing the transaction, I could see it costing $1000, but not just for the ppwk.  I'd ask a title co in your area.  Shoot for $300 or less.

I always offer to pay for the docs and for establishing the contract servicing through a local bank that holds original ppwk, auto drafts the payments from my acct to theirs and does the annual interest reporting. That costs $150 to start and about $7.50/mo.  

Without the servicing and ease of payment collection and reporting by a known and trusted local bank, I would probably have 0 SF deals.  It's important to sellers that this is handled easily and properly. 

[Samuel Cervantez]

@Steve Vaughan so your first step is create the deal (I'm sure with the owner) then it goes to the attorney. Are there documents created (here on BP file place) that help cover the deal? I was under the impression that the lawyer would cover sit down with both making the deal and create the terms.

[Steve Vaughan]

Originally posted by @Samuel Cervantez:

@Steve Vaughan so your first step is create the deal (I'm sure with the owner) then it goes to the attorney. Are there documents created (here on BP file place) that help cover the deal?

I was under the impression that the lawyer would cover sit down with both making the deal and create the terms.

 Oh- I see your hang-up.  I haven't used the BP file place before, but make sure it is state-specific if you find something there.

Here, I grab a pre-printed NWMLS purchase and sale agreement online.  Same one the realtors use.  It has a 'Method of Payment' addendum with fill-in-the-blank terms for DP, rate, payment amount, balloons, how it is structured, etc.  The title co sends that to the attorney (that I never meet) to draft according the PSA.  Sellers are more comfortable with boiler plate language anyway.   

TX uses a TREC form, right?  Look into what is standard there for PSAs and any normal addenda.  It will probably have one related to SF.  Good luck, Samuel!

[Samuel Cervantez]

@Steve Vaughan thank you for the information...one last thing what is PSA and does the SAFE act allow this deal to go through?

[Steve Vaughan]

Originally posted by @Samuel Cervantez:

@Steve Vaughan thank you for the information...one last thing what is PSA and does the SAFE act allow this deal to go through?

 PSA = Purchase and Sale Agreement.  

I'm no Safe Act expert, so can't comment much, but most of the DF and SA stuff applies to owner-occupied property and folks that offer SF to owner-occs more than 3x per year.  As far as I know LOL.  Good luck!