The Ultimate Guide to Owner Financing

If you’re looking to learn more about owner financing then you’ve found The Ultimate Guide to Owner Financing where you will learn about creative financing strategies with an emphasis on getting the seller of the property (the owner) to act like the bank and allow you to make payments to them to finance your purchase.

Owner financing is just one type of Creative Financing.

Class Recording:
Owner Financing

On July 20, 2016 I taught a special real estate investing seminar on how to use owner financing which you can watch below.

Owner Financing: What is it?

  • Seller acts like the bank
    • Property must be free and clear
    • What is it if they have a loan on it?
  • You purchase the property
  • You and Seller agree on terms
    • Interest rate, duration, amount of loan and purchase price, payments, balloon, amortization
  • Note and deed of trust for the benefit of the Seller
  • You’re the owner and if you don’t pay, Seller can foreclose

Key Characteristics of Owner Financing Sellers

  • Own their home free and clear
    • 1/3 of all homes are owned free and clear according to the US Census Bureau
    • Or have the ability to pay off the property to offer it to you on Owner Financing
  • Possible motivations:
    • Been for sale for a long period of time
    • Home is vacant
    • Out of the area owners
    • Home is not being maintained
  • Desire a hassle free income stream
  • Desire a return on their equity

Benefits To Seller of Owner Financing

  • Gets sold immediately – peace of mind
  • Marketing advantage to offer Owner Financing
  • Get income
  • Convert stagnant equity to income-producing equity
  • Might be higher return than they’d get if they sold it and put it in the bank or CDs
  • Changes the tax characteristics of the transaction for Seller

Qualifications for Owner Financing

  • Varies with each Seller.
  • Some will want full credit and income check like traditional bank qualification. Some will not.
  • Some will want larger than 20% down payment. Some will consider it with nothing down.

Owner Financing: Return on Investment

  • Since these can be lower down payments, can often amplify ROI (since down payment is the denominator)
    • Can make positively cash flowing properties have higher ROI
    • Can make negatively cash flowing properties have lower ROI
  • Since these can have lower than market interest rates, can often improve cash flow and debt paydown
  • You do get appreciation and tax benefits
  • Some owner financing may have interest only loans and some with balloons which can improve cash flow but remove benefit from debt paydown

Check out additional information on James’ Return Quadrants™ to dive deep into these related concepts.

Creative Financing FAQs Matrix

Creative Financing FAQs Matrix
Creative Financing FAQs Matrix

For more information on owner financing and specifically how it compares to other types of creative financing, check out the Creative Financing FAQs Matrix as described on the The Ultimate Guide to Creative Financing.

Additional Ultimate Guides

Looking for additional information about real estate investing and real estate financial modeling and planning? Check out some of our other ultimate guides below.

More posts: Ultimate Guide

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