I have been thinking of how to get this piece of land that I want. I am a bit stretched on my credit and do not want to over extend myself. One of the creative financing methods for bridging the gap between me and the property that I am thinking of is through owner financing. I have been successful with this before.
Benefits for owner financing:
No credit needed (generally)
Does not show up on credit
Faster closings
You can negotiate terms, not conform to a banks “programs”
Good option when buyers are desperate
Lower closing cost
Negatives to owner financing:
Potentially higher interest rates
You might lose bargaining chips in other aspects of the deal (higher price/rates)
Not always possible
The biggest thing though is that you can make the deal through owner financing where you might not be able to get the loan. Each deal will be unique and every detail will have to be watched but this is a way to make things happen when you might feel you are out of options. The seller might also feel they are out of options…
Popularity: 3% [?]
January 22nd, 2008 at 4:28 pm
is there a time limit on this? I’m not into real estate (but would like to be) and this might
be a good option for some ideas i have.
January 22nd, 2008 at 4:45 pm
This is where you can be creative. I have done it twice. Once with a four year loan. I paid ~25% down then ~25% plus interest once a year for three years. Basically January 1st for three years I dropped down some money.
The other loan was a 15 year loan on a larger amount that paid monthly interest. I had to make sure that the loan could be paid off without penalty at any time (and all the normal stuff). The good thing about this is that you can negotiate the terms with a person (the owner) as opposed to the bank.
It will not always work out and depends on the seller. They might be in a bad situation and need all the money asap.
January 22nd, 2008 at 8:38 pm
Now did you have to do the 25% each year or was it set in terms?
January 22nd, 2008 at 11:32 pm
It was what we had agreed on in the terms. I could have done more, and it is possible I could have done less. With my current deal I assume the sellers need X amount of dollars, that is why they are selling. So I would have to get them out of debt to make the deal work.
You also would probably want to give enough up front to cover the realtor cost (if any involved). In my current case, I would need to offer enough to cover their debt, realtor, and a little happiness.
My previous case there was no realtor and the guy had no debt. I just had to offer enough to entice the guy to let it off the market. He was rich and was cool helping me out. Could be some one is just as poor and they have to have money asap so you covering them and giving them a few g’s is enough.
One of the other things is that since you aren’t looking at bank credit for owner financing you can pull the money from almost anywhere. For instance on some ventures I have pulled cash off of credit cards (with zero percent interest for 6 months) as the down payment. You can pull equity out of other properties, your house, etc… You just have to make sure you can make the payments.
You can talk to your realtor about what you want to do and they will either know what the seller will do or find out. You would want the financing options to be included with the offer to purchase. So basically you present your offer with this financing info.
January 28th, 2008 at 5:36 pm
How would you work this deal through a broker? I have to pay my broker a commission for doing deals, but if I finance through the owner, using a broker is kinda useless. However, I do have a good relationship with my broker and if I do two or three owner-financed deals, he/she will think I am cutting them out. How do I avoid this, yet keep the flexibility of owner financing?
-The Flipster
January 28th, 2008 at 6:54 pm
Well, it is as flexible as you want it to be. I would recommend using a lawyer for the closing and the final paper work, but you do not need the broker.
The first time I had used owner financing I was buying from a very shy (yet extremely wealthy) gentleman. He was not using a realtor and was not really advertising what he had for sale. So I knew going in with a big team of people would intimidate him (plus I did not have a big team). He was a one-on-one no BS type of guy. He was looking to help out first time buyers.
So you could use that type of excuse so your broker does not get hurt feelings. Let your broker know that this seller might be intimidated by lawyer types.
Maintaining relationships is a tough egg to crack. You want them to bring value to your relationship with them, and you do not want to pay them for nothing. I could be a dick and say, if they don’t understand forget about em. But I do understand that at the same time you might want to keep the relationship. I will probably either respond more on this here or post a new thread on it (I have so many things running through my head on this concept). This is a good question/topic.