Selling on owner financing (good vs evil)

I was at a charity event last night.  In Pittsburgh we even use real estate education to raise money for good causes.  

My friend Joe was on the stage speaking about owner financing and the evils that he sees in that technique.  I was aghast.   This is exactly 180 degrees from my view of the same subject.  So which of us is correct?  I suggest that we both are. 

Now Joe is a very successful real estate investor and a good guy.  I know him well and I know his heart. I also know him to be an honest man.  So I was truely amazed when he started out explaining that selling on owner financing was predatory and an evil act.  He made some great points about people who shouldn't be buying houses getting themselves into debt and getting wiped out when the default.  I know that statistics indicate that many of the people who try to buy an owner financed house will fail.  Does Joe have a point?  Are we real estate investors acting as predators of the uninformed foolish buyers?

My take has always been that we are the shining knights who offer people who can't use traditional banks, a way to own their own home.  Am I wrong?  I love ideals like the path to home ownership.  I love helping people.  Have I been screwing them?  

After some careful self examination, here is what I have concluded. 

Owner financing is a tool. Just like a hammer.  I can be used for good to pound a nail, or it can be use for evil to bash someones skull in. The real answer is that the tool is neither good nor evil but the wielder of the tool controls the action. 

When I sell a house on owner financing, I am taking a risk on someone.  I am betting that they will succeed.  When I place my bet, I am screening the Hell out of these people.  There are a lot of people out there with crap credit.  I want to know why.  I want a reasonable explanation for why your credit sucks and I want proof that you can pay the monthly payment that I am creating for you.  I once sold a house to an MD who had a great income but crap credit.  He had just gone through a divorce and his ex had destroyed his finances.  In my mind I was doing a good deed.  Sure I was making money, that is my goal. At the same time I am helping out a good guy who had a life disruption.  That life disruption killed his credit score and made sure that no bank on earth was going to lend him money. 

conversely, there are investors out there who do not screen their buyers.  They weasel the system and look for people who are barely able to qualify. They play close to the law and look for one thing and one thing only.  They look for a big down payment.  The could care less if the buyer can sustain the payment.  They do the minimum screening and in fact many of them actually look forward to the buyer defaulting.  This is wrong and predatory.  

So I guess that Joe and I are both right.  So it is up to you my dear reader, will you work for good for for evil? The choice is yours.  

To your success

Josh 

PS we will be discussing this further at my Pittsburgh REIA Club