The Secrets To Investing With Owner Financing

By mike129

One of the best techniques that you can use as an investor to capitalize on these deals is to understand and take advantage of owner financing.
Lending requirements are tougher in this market. You have a number of people out of a job and you have a number of properties in foreclosure or unoccupied. Sellers in this market are looking for any advantage that they can get to sell their properties faster. One of the strategies that many sellers are using is what is known as owner financing.
Owner financing can be used by you as the investor to your advantage regardless of whether you are buying the property or whether you are selling the property. The way you will use it varies based on what side of the transaction you are on.
How does owner financing work?
Owner financing works when the seller of the property agrees to sell the property to the buyer and provides financing to the owner. In other words, the seller acts as the note holder and the buyer pays mortgage payments on the property to the seller.
The benefit to you (if you are on the buying side of the transaction) is that you get to purchase the property at better terms. A seller will often provide significantly better terms on financing than you would get if you go through a bank or lending institution.
For example, I’ve seen owner financing deals in this market where the owner is willing to finance the property with an interest rate of only 3%. That type of interest rate is unheard of if you go through a lending institution. It is most certainly possible if you buy a property in which the seller is offering owner financing.
Typically a property needs to be owned “free and clear” in which owner financing is provided. In other words, the seller needs to not have a mortgage on the property. If a mortgage is due on the property, the owner can’t do owner financing because the mortgage needs to be paid off prior to transferring ownership of the property.
However, even if the property isn’t owned free and clear, the seller can still offer partial owner financing. The buyer will just simply need to get a mortgage for the outstanding amount that is not being financed by the owner.
It’s obvious as to how you benefit as an investor with favorable terms. The question is what benefit does the seller get in providing financing to the buyer?
First off, the seller can often sell a property faster with owner financing as oppose to having the buyer get financing. In some cases the seller may HAVE to sell the property with owner financing in order to get the property to sell at all.
Secondly, the owner can often get a higher sale price with owner financing than if he or she requires the buyer to secure financing. Because the terms are more favorable, the owner can often charge a higher price for the property. The buyer will often pay that higher price because he or she wants those favorable terms.
Third, there are tax savings that comes with seller financing as well. Since the seller is receiving his/her money in installments, there is a lower amount of tax that is owed than if the seller received a full payment at the close of the sale.
Owner financing can also be used as a negotiation strategy when you are working with a motivated seller. If you have a seller that wants a price that is a little higher than you want to pay, you still might be able to make the deal work with owner financing.
What you do is find out exactly how much money the seller needs immediately. If the seller doesn’t need the full amount immediately, you can offer to pay off the mortgage, pay the seller the amount needed up front and have the seller finance the rest of the amount at terms that are favorable to you.
Suppose you have a property that you are looking to buy from a motivated seller. The property has an after repair value of $200,000. The property needs $30,000 in repairs and the seller has a mortgage of $80,000.
You offer the seller $100,000. The seller counters at $120,000. You ask the seller how much money he needs to move. He says $10,000.
What you would do is agree to give the owner the full $120,000 if he agrees to your terms. You ask the owner to finance $30,000 at 3% interest over 10 years. You will get a mortgage for $90,000. $80,000 will go to pay off the mortgage. The remaining $10,000 will go to the owner.
This is a win/win arrangement for both parties. The seller gets the money he needs to move up front and gets the rest over time. You get the property that you want and get a lower interest rate on a portion of the money that you are borrowing for this deal.
Owner financing also works if you are the seller. If you own the property free and clear, you can offer owner financing to your buyer. You can offer attractive terms in return for being able to sell your property for a higher price.
You can also offer partial seller financing as well if you need to get some money from the sale but not the full amount. This way, you can make the deal close faster, but still get the money that you want from the property eventually.
You can also use owner financing to sell your house to someone who might not qualify for a mortgage. If you don’t mind having to foreclose on the property should the buyer fail to meet the terms, you can create additional demand for your properties in a buyers market.
Owners financing is an excellent tool to use at your disposal as a real estate investor. As with any real estate transaction, you should make sure that you seek out the advice of a competent attorney. These types of agreements needed to be drafted up in the form of a contract and you need to make sure the terms of the contract accurately reflect your best interest.

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About The Author
Mike Warren is a real estate expert and trainer.real estate expert To get some of Mike’s Free CD’s, reports,videos, courses and more please visit our website at misuniversity.com/blog