Would like to owner finance to investor/fix and flipper or buy a

Question

I have an end goal of creating an owner financed note.  I know that there must be fix and flip or buy and hold investors in the St. Louis area that would like to use leverage and alternatives to bank financing.  Please critique my ideas:

I would like to purchase a low price investment property (from MLS, wholesalers, where ever I might find them cheapest) bump up the price then sell to a fix and flip or buy and hold investor as an owner financed property.  The down payment would be very low. This would allow the investor/buyer to invest more of their own funds to do what rehabs would be necessary to either put a tenant in the home or to sell the home as a fix and flip.  Seems to me it could potentially be a win-win situation for all involved.  Is there any market for investments of this kind?

Ronald Perich · Answer

How well protected are you in this arrangement as a lender? You're basically financing the investment at 100%. No equity in the property for the investor means it's pretty easy for them to walk away.

They come in for a year, suck their $3600 out of the property in cash flow, do no repairs or maintenance, and you're left holding the bag for a property that's probably worth less than the day you bought it.

If the note goes non-performing and you're forced to sell, you'll probably get no more than $6-7K for it.

I really see you as taking all of the risk and getting very little in terms of reward.

Oh, and Dodd-Frank doesn't limit you in the number of loans you can make. It limits you in the number you can make without following the Dodd-Frank guidelines.

Sandy Uhlmann · Answer

I am referring to properties that are of low value-less than $50,000.  Not many hard money lenders will take on those loans.  There are reasons that people cannot qualify for a hard money.  Usually the interest rate is far higher than the 12%. Additionally, many hard money lenders require a minimum of 2 points (for repeat customers) and I have seen numbers up to 6 points.  $1000-$1500 is far from that.  There is some value to finding/sourcing  houses that are good deals.  Saves the investor time and money.  Not all investors are as savvy as those on BiggerPockets and know how to source good deals.  What is to say that my markup price is not the same price or less than what they could find of the MLS?

The bottom line is  for LOW PRICED HOUSING (especially if you were going to fix it up with a minimal amount of money and put tenants/section 8 in the home) another investor can have a cash flowing investment with a little more than what it cost them to get the home rent ready.

I happen to have purchased a few of these first trust deeds and I would bet that the borrower/investor who is paying on the note didn't get as good of deal as I am proposing;)

Sandy Uhlmann · Answer

@John Mathewson Purchasing and financing the property only vs the property and the rehab allows the risk to be spread more equally between the end investor and the lender.  Additionally, by purchasing the property and owner financing it to the flipper or buy and hold investor, it allows me to do more deals because I have less capital used up in the deal.  It also allows the investor to use the money that they have might put down in cash to buy the house to use that money for the rehab instead.  Here is an example:

I find a house and purchase it via a wholesaler or by whatever means significantly below market value, lets say for $15,000.  I offer it for sale as an owner financed deal for $25,000 ($1500 down and

$337.16/month)  I would probably add an extra $100 into the mix for servicing fees and escrow of taxes and insurance so the monthly payment would come up to approx $450/month.  The end investor rents the house out at $750/month clearing $300/month for an investment of the $1500 to me plus whatever amount the rehab cost was to him/her.  Or they sell the house and cash me out when they do. No penalty for early repayment.

I on the other hand have a nice note at a rate of 12% that I can keep or that I can resell all or a partial off of.

This would work to if I find a handyman to owner finance to and allow him/her to fix up the house.  I would structure their payments such that their monthly mortgage payment plus service fees an taxes and insurance is no more than what their current rent payments are.  The drawback to doing this to a non-investor is that Dodd Frank comes in and I am limited to the number I can do.

John Mathewson · Answer

@Sandy Uhlmann that is a really interesting proposal. I haven't heard of anyone doing that before. I'm sure there is someone out there but i have not. Wondering what your thoughts are as to just financing the purchase of the property and not the full investment amount?(That is typically what our investors do and we split profits with them) I'm wondering how many people have enough cash to fund the rehab part on it only. Im very curious on what others think and if anyone else is doing this.

Would like to owner finance to investor/fix and flipper or buy a

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