True Passive Income with Owner-Finance (Details + Pictures)!

[Eryka Santoyo]

Hey, BP!

I wanted to hop on here and share my experience with my first owner-finance deal! My partner (@Joseph Breamer) recently shared about a successful BRRRR we completed so I thought I'd share about our Owner Finance project as well!

Background:

Our team invests in Huntsville, AL and we currently co-own 6 properties together. We closed on these properties back in 2019 (in August and December). We completed 1 BRRRR (back in Feb 2020), and are in various stages of BRRRR on the 4 other properties. We placed our buyer/tenant for the owner finance property at the end of March and it has basically been running itself since then! I wanted to share about how we found this deal, what went into the rehab, how we placed a tenant, as well as break down some of the numbers!

The deal:

We have worked very hard to establish rapport and strengthen relationships with wholesalers and other deal finders in Huntsville. (More background info on that on Joe’s post here). After we closed on our first BRRRR property in August, we were brought this second property by the same wholesaler who brought us the first deal.

Property Details:

3 bed/ 1 bath SFR

$40,000 purchase price - cash

Estimated rent: $750/month

Zip code: 35811

They provided details about the property, did a walk through and shared photos with our team. We had our GC do a walk through and it was a solid house that only needed cosmetic updates.

We did our due diligence, checked comps in the area to see if this would fit our BRRRR strategy, but based off the comparable properties (valued at $50k-$60k), the ARV of the property wasn't high enough for us to pull a significant amount of money out of the deal, like we would typically do in a BRRRR. Also, this property is located in a neighborhood that was a more challenging area for long term buy and hold rentals, according to other local investors in the area. However, our wholesaler gave us a great deal and we knew that buying a property under market value, we could create a win-win situation! That's how we landed on owner-finance!

Owner Finance Strategy:

Owner finance provides benefits for both the buyer and the seller. It’s a great way to create a real estate transaction without involving the bank, allowing for more flexible terms for both the buyer and the seller.

Our intention was to sell the property above market, but negotiate a monthly payment that was a win for the buyer and us. By doing this rent to own, the buyer would pay less than market rent and own the property once the loan was paid off. This would also allow us to collect monthly cash flow, with the management responsibilities being under the new buyer.

Rehab:

We ended up putting approx. $8,000 worth of rehab work into this property. The property was in decent shape when we got it. Our goal was to modernize it, clean it up and make it more marketable. We did a cosmetic kitchen remodel (repainted walls, cabinets, installed tile), laid LVP throughout the house, and cleaned up the bathrooms.

Placing the tenant:

Our wholesaler is also a very savvy investor and has some experience with owner financing deals. We were able to reach an agreement with him to have him help us find a buyer for this property. We screened many prospective buyers and we eventually came to a deal with one them with the following numbers:

Purchase price: $70,000

Down payment: $6,000 (we were asking for $10k, but the buyer said they would like to use $4k to upgrade the HVAC)

Interest Rate: 10.5%

Loan Term: 30 years

No prepayment penalties

Taxes and insurance to be paid by the buyer (total amount including in mortgage payment, but actual payment made by us)

Total monthly cash flow: $664.60

The buyer moved in and made the first payment on April 1st and paid early for May- off to a great start!

I'm so appreciative of this community and everyone’s willingness to help others! I’ve learned so much in the past year and owe a lot to BP and everyone who so freely answered all my questions in the beginning!

Thanks so much for reading!