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.
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
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.
- The Ultimate Guide to After Repair Value for Real Estate Investors
- The Ultimate Guide to Property Value on Rental Properties
- The Ultimate Guide to Debt Paydown for Rental Properties
- The Ultimate Guide to Rental Property Depreciation
- The Ultimate Guide to Real Estate Appreciation
- The Ultimate Guide to the Types of Real Estate Investors
- The Ultimate Guide to Vacancy on Rental Properties
- The Ultimate Guide to Property Insurance on Rental Properties
- The Ultimate Guide to Property Taxes on Rental Properties
- The Ultimate Guide to Purchase Price on Rental Properties
- Ultimate Guide to Mortgage Payments for Rental Properties
- The Ultimate Guide to Other Income on Rental Properties
- The Ultimate Guide to Rent on Rental Properties
- The Ultimate Guide to Gross Potential Income on Rental Properties
- The Ultimate Guide to Operating Expenses on Rental Properties
- Cash Flow
- The Ultimate Guide to Cash on Cash Return on Investment
- The Ultimate Guide to Cap Rate for Real Estate Investors
- The Ultimate Guide to CapEx on Rental Property
- The Ultimate Guide to Rent Comps
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