Owner Financing – Three Strategies for Negotiation

The following article was submitted to me about Owner Financing and while I have a slightly different opinion on how common owner financing is and how to negotiate to get it, it is a good article to get a feel for what others think about the topic.

Owner financing, which is also called seller financing, is pretty rare in the world of real estate. This is because it requires the current owner to pay off his or her mortgage before they can sell. Without the upfront cash of a traditional mortgage, this is usually impossible. However, there are a couple of exceptions.

One situation which might allow for Owner Financing (links are to exclusive resources for our Real Estate Investor Bronze Members) is if the seller views this as an investment. They would get a guaranteed rate of return based on the agreed upon interest rate, rather than putting money in the stock market and taking a risk on the return. The seller can also charge the buyer higher interest rates than banks. In traditional investments, a loss is always possible. In an owner financed sale, the only possibility of a loss is if the buyer defaults on the loan. Even in this extreme case, the seller can foreclose and get the property back.

To convince an owner to accept Owner Financing, you might try offering them a higher interest rate. Of course, in this case, the buyer would rather get a traditional loan from the bank, so this would likely be a last resort for a buyer who cannot get another type of loan. If there is an improvement in financial circumstances, there is always the possibility of moving the loan to a bank with a lower interest rate.

Another option is to have the owner finance only part of the loan. The majority can be a traditional loan from a bank, with the Owner Financing the other portion. Again, when your financial position improves, this portion can be moved to the bank as well.

Although Owner Financing is rare, it is sometimes a good option for both buyers and sellers. Using the three points above, it may be possible to negotiate an owner financed property that will be best for all parties.

Many real estate investors know how to buy houses with Owner Financing. If you are interested in learning about buying, selling or renting properties using these creative strategies then check out these free resources for Real Estate Investing.

Until my next post,

James

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