All Forum Posts by: Kent Harris

I have a home I want to owner finance. I want to setup an escrow account at the Bank to pay the PITI and HOA. Does anyone know how to set this all up?

Tom,

The reason I would give 10% back is "cash for keys". I don't want them to be bitter and trash my house. I have done cash for keys on Rentals and there move in ready when I get them back. If they put $20,000 down I would give them $2,000 on move out. At least they have something to start over. I can get another $20,000 from the next person who owner finances. Also It's going to cost me more them $2,000 if they camp out at my house and not make a payment while legal proceedings go on for 4 months.

Kent,

Your right, it's a lot more complicated then it used to be. I am closing at a law firm the specializes in the transaction I am about to do. I have taken several classes and learned the laws I must follow. Like not getting involved in Conversion or misappropriation of funds. Putting the money I get from the owner finance person and putting into my personal account. This is why all funds need to go to an escrow account. I will setup a single account for each house I owner finance and distribute the funds accordingly and use the Escrow account for PITI and what is left over send it to my general checking account.

 Since I'm an LLC I have more to lose. When the person is making the payments everything is all well. Sickness and job loss will change all that. An attorney will look at every conceivable way to get out of the contract and if you did anything wrong will go after you. If I am using a Loan Originator and putting all the money into an Escrow account and mailing them a Statement every month showing where all the money is going and how much they still owe, I'm doing my due diligence. Last year I got sued because I filed an eviction on an 86 year old. (Discrimination against an Elderly person) Since I did everything by the book there was nothing the Attorney could come after me for and the judge gave him 3 days to move out.

The reason for the high interest rate is the risk factor involved. It will be an individual purchasing the house. If the person defaults on the loan your looking at 6 months to get them out versus 21 days if there a renter. The house I am putting on the market next week my Mortgage payment is $475 per month which will net me $650 a month based on 15% down from the new buyer. There payment will be $1,100 a month for the mortgage. With Insurance, Property Taxes, HOA & MUD your looking at $356.25 a month for a grand total of $1,456 a month. The Rent rate is $1,495 per month for that neighborhood. As a rental I'm am netting $525 per month. Also the advantage is I'm getting $23,000 down and don't have to do any repairs. The trick is to keep the monthly payment lower then the rent rate for the area. If the person defaults I will give them 10% of the down payment back which would be $2,300 and start over again. My goal is to get them into a conventional Mortgage within 2-5 years. If the person I owner financed to stays there for more then 10 years without rolling it out, I will have a note buyer take over as the lender.

In Texas the going rate seems to be 9.9%. I have a 4.25% mortgage on the one I'm about to owner finance. I'm also going to charge 5% above market for the property. My competitors charge 10% above market. My intentions are to roll them into a conventional Mortgage after 2-5 years. If you charge 5% above market and Real Estate is going up 3% per year then you can roll them into a conventional mortgage in a couple of years. The interest rate also depends on the down payment, the higher the down payment the lower the interest rate. In Texas you can evict someone in 21 days. A foreclosure takes 6 months. In my rental business, cash for keys seems to work 80% of the time. Last year I only went to Eviction court once. The Tenant had an attorney and counter sued me for discrimination against an elderly person. The judge threw out the discrimination charge saying. "If the Landlord wanted to discriminate  against you he would have not have rented to you in the first place!"  

In owner finance I imagine you can offer someone $2,000 to move out and there is a good chance they would. Hope this helps. 

I've purchased 15 rental properties in the last 3 years and want to sell off all my 4 bedrooms since for the most part they have been problematic. In the Houston area the rent rates have gone down 15% since last year. The $1,750 a month 4 bedroom houses are now renting for $1,495. Also the 4 bedroom houses were selling for $205,000 last year are now selling for $185,000. 

I want to owner finance these homes to keep the cash flow moving, I have read the laws about it and pretty much you need a Loan Originator ($750 Fee) and a fee attorney to follow Dodd Frank guidelines. I also found escrow companies to hold escrow and pay the lender. My question is can't I just setup an escrow account at the bank and only use it for Taxes, HOA, Insurance and Mortgage payments? The reason I don't want to use an escrow company is the person doing owner finance has until the 15th of the month to pay the Mortgage. I pay my Mortgages on the 10th of the month. The Escrow companies I have talked to will not hold 2-3 mortgage payments in escrow, making my payment always late.

Also what should the down payment be? What qualifications should I use?

The going rate in Texas for owner finance is 9.9%. My first house I want to owner finance will go for $159,600. At 20% down or $127,200 at 9.9% interest the Mortgage payment will be around $1,100 a month. Still cheaper then rent. 

Kent,

Sekelle. You are right. I should keep the property and hire the GC to do the repairs and sell it myself. Since he would be getting a 100% loan he would have no skin in the game. If I sell it to the GC I would make $30,000 and could not take a profit until it is sold anyway. The GC wants $30,000 to do all the repairs minus materials. Once the house is renovated I can sell the house for $205,000 and make a $55,000 profit instead of a $30,000 profit (Minus Closing Costs). The only difference is I would need to take out a $15,000 renovation loan to pay the contractor over the course of 2 months. 

I have 3 contractors that I want to get into the flipping game. I wanted to get them started somehow so they could be loyal clients since I can get the inventory. I probably should look for contractors who have the down payment and let my Hard Money sources loan them the money. This way I can keep my cash flow moving. 

Yes, I want to wholesale the property to the GC. I had purchased the house as a cash buyer and currently doing a 10 week lease back to the seller which there moving out this weekend. In order to make it work I will need to loan money to the GC for materials (I get 60 days to pay at HD so no money out of pocket there). I purchased the property for $120 ($121 with closing costs) and want to sell it to the contractor for $150, the ARV came in at $205. I figure it will cost the GC $15,000 in materials to do the renovation. This will be $30 for me and $40 to the GC once it's retailed. Not sure how it would work since at closing. I would be paying myself at closing since I already own the property. Since Contractors tend to live paycheck to paycheck I only want to give him enough money to get the job completed and he can have his $40,000 payday once he retails the property.

I was looking at the Freedom Mentor program (FMP) and Phil had mentioned something about assigning the property instead of purchasing it and having a crew do the renovations. I have found a GC that went bankrupt after the housing collapse. He has the knowledge to renovate the houses except he has no credit and can only get asset based loans. I can get the money to purchase houses at 4% interest only, with no points. Are there any good books on how to do assignments? I think giving 50% to the FMP for mentoring is a bit high since I have done 17 deals in the last 3 years. 12 buy and holds and working on my 5th flip property.