Wholesaling an Owner Finance

[Terry Royce]

I have a property that has been sitting on my plate for a while.
The owner has finally agreed to offer owner financing at 5% with 5% down.
My price is 13,800 and I had a 4k fee attached. I've had alot interest in the deal and this should really get it moved.

Is there anything different that would need to be done? I would think that I would just have to have a contract amendment stating that the terms correct? And have the title office draw up the owner finance paperwork?

What do I need to do to make this happen?

[Ryan Webber]

Well at that point you're not really wholesaling. At that point you are doing a wrap around mortgage, which if you are comfortable with the numbers on the deal that might be a good idea for you.

Your statement that its in a war zone concerns me. War zones are not the place to be doing business, even for $13,800. War zones have extremely high crime rates, a high percentage of abandoned houses (15-20%+), and a very low percentage of investors, buyers, or worthwhile tenants. If its an actual war zone, I would probably pass.

Now let me balance the idea of a war zone with the fact that many newer investors think an area is a war zone because they don't personally feel comfortable there but many times its really just a lower end area. You can make a lot of money in lower end areas, but you will not make much of anything in a war zone.

I would check the retail market in that area to get a better idea. Lower end areas usually still have a reasonable amount of retail activity. War zones don't. If everything in your mind is screaming war zone check and see how many closed transactions on the MLS happened in that area compared to some of the other areas in town. The war zone in my town will have less than 5 closings a year while other low end areas range from 15-50.

Now let me balance that just because it doesn't have much retail activity does NOT mean it is necessarily a war zone, but if everything is pointing at war zone and it has no retail activity then I would stay away from it.

I once came across a relatively large lower end neighborhood that only had 2 or 3 retail closings a year, but when I drove through it I could barely find any vacant houses, for rent signs, or for sale signs. The houses were taken care of fairly well. With some digging I figured out that the area was a strong Hispanic area that people rarely moved in or out of, and most of the sales were owner financing.

Now if its not a war zone and you are wanting to maximize your cash flow, I would recommend you look into possibly doing a wrap around mortgage to a retail buyer. I would research the market rent for the property and then offer owner financing (PITI) at that rental amount with a reasonable amount of down payment depending on the area and condition.

So if the market rent is $500 a month for that house, I would factor out taxes and insurance, which let's say is $100 total, and then work backwards with the $400 to amortize on a 30 year note at the desired interest rate (I normally use 12%). So if I were using 12% on a 30 year note then $400 a month is roughly a $39,000 note amount and let's say I would require $2,000 down, so my sales price would be $41,000.

$2,000 down
$500 monthly payment
$41,000 sales price

You would be making somewhere in the ballpark of $300 gross profit a month plus the down payment.

Applicable state and federal laws also need to be considered when doing any type of financing. Sometimes its easier just to rent the property.