Deal Analysis Basics: Buying Owner Financing and Terms

I often discuss the three categories of deals that real estate investors are looking for. I classify them as equity deals, cash flow deals and/or owner financing. In this article, I will be focusing on some basic owner financing deals.

Before I get going, I want to point out that I said BASIC owner financing deals. I will not be discussing low or zero-interest loan strategies nor will I be going into detail on how “subject to” deals work. This will just give a basic overview of how owner financing deals can work.

Another point before I begin, owner financing is usually combined to make an equity or cash flow deal even better. Rarely is a deal good enough to be worthwhile just because it has owner financing.

Let’s take a look at a couple different basic examples of what owner financing deals could look like:

Owner Carries Back Down Payment

Real estate investors often are trying to conserve their cash, so when an owner is willing to allow an investor to make payments instead of putting a large amount of money down toward the purchase of a property, the deal becomes very attractive.

Here’s an example. Let’s say we have a $200,000 house. You make an offer to purchase the house for $180,000 with the seller carrying back the down payment. In this case, you negotiated that you (or your investor buyer if you are wholesaling) will get a new loan for 90% of the purchase price and then you can make payments to the seller for the 10% remaining. In this case, that would mean you are getting a new loan for $162,000 and making payments on $18,000 to the seller.

Owner Carries Back Entire Purchase

What if you found a seller that owns the property outright and does not have a mortgage on it? In this case, a seller may be willing to accept payments on the entire purchase price. You could negotiate the amount of the payments, how often they are made (monthly, weekly, twice a year), the interest rate and the term (30 years, 15 years, 5 years) of the loan.

Some sellers might try to get you to put up a down payment if they would be willing to accept payments for the balance. Some might not.

Owner Will Allow You to Make Payments on Their Loan

What if a seller is really having a hard time making their mortgage payments? They may allow you to make payments on their existing loan while you get the property sold. This can be setup in a variety of ways including buying the house “subject to” the existing mortgage; or as a rental with an option to buy (often called a lease-option) where your rental payment mirrors the actual house payment; or on an Agreement for Deed (also called Installment Land Contract or Contract for Deed).

As you can see, there are many variations on how to structure owner financing deals. The only way to gain experience with these types of deals is through practicing creative offers and making them.

Owner financing is rarely offered unless you specifically ask for it. So, if you are looking to get owner financing, you will need to make offers that include it.

Until my next post,

James

P.S. A major area of focus that we teach to our Real Estate Investor Bronze Members in this market are strategies for buying properties with owner financing. Sign up today and learn how.

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