Dallas-Fort Worth Real Estate Investor Club

Owner Financing Question

  • 19 Apr 2016 2:45 PM
    Quote
    Message # 3971602
    Deleted user

    I am being asked to Owner Finance my property. It is free and clear and I could have the monthly income without the hassles of being a landlord of a rental. Can some one with experience in this area give me some advice either positive or negative?


    Thanks
  • 19 Apr 2016 5:45 PM
    Quote
    Reply # 3971893 on 3971602
    Deleted user

    It all depends on your financial situation.  Don't even consider it without asking for at least 20% down + all closing costs.  Have you lived in the property?  If so your gains may be tax free so that is something else to consider.  Also the DFW market is HOT at the moment so I would definitely consider selling outright.
  • 19 Apr 2016 6:26 PM
    Quote
    Reply # 3971942 on 3971602
    Dwayne Modisette

      Is the property in full retail-ready condition? Are there any issues preventing you from being able to sell it through more traditional means like bank financing and a realtor? Are you selling it below market value due to repairs or needed updates?

      Being this is a forum for real estate investors, are you investing in or looking to start investing in real estate? There are things you can do in this industry other than being a land lord and dealing with the hassles that brings. (Of course, I feel it is better to use wisely worded lease agreements a property management company to take care of most of those headaches.) Depending on the value of your property, you may be able to leverage it into financing/downpayments on multiple other properties and retain that property to sell at a later date if you still want to. You may be able to make more off it this way than you could with the sale proceeds.

      All that being said, I am a big fan of owner financing. It can make a deal happen where one couldn't otherwise. It can allow a family the opportunity to own a home when conventional financing is out of the question for them. There are a number of situations where it can create a win-win.

      I bought my first house with an owner finance arrangement, but I, personally, do not have any experience on the seller's side of owner financing. Just been around those who do. Many of which are members here. So you are definitely in the right place to ask for advice on the subject. One thing I can offer is to make sure your owner financed note is fully compliant in case you ever decide to sell it. It is best (and easiest) to use an RMLO from the beginning to originate the loan. Robert McKinney of Capital Group gave the club a couple classes on owner financing notes last year. He seemed to be a really great guy, honest, very knowledgeable, very helpful. I just noticed my phone is missing the last four digits of his number, but you can visit his website: http://www.capitalplusonline.com/our_staff.html The office numbers and email are at the bottom. I highly recommend giving him a call if you decide to owner finance.


    -Dwayne Modisette

    DFWQuickClose.com

    817-925-2392
  • 20 Apr 2016 10:44 AM
    Quote
    Reply # 3973439 on 3971602
    Deleted user

    Given the current state of the market (exceptionally high prices, with exceptionally low inventory), I would get an honest, knowledgeable, and DISINTERESTED appraisal of your property (location, schools, condition, appeal, etc.), your financial health/goals, and then weigh that with your expected return from the various exit strategies available to you (if you own it free and clear you can use any ES you want).

    If the house is in good shape, is appealing, and can be made "Doll House" ready for minimal investment, I would SERIOUSLY consider cashing out (sell it outright for full retail to someone for all cash/bank financing). If the house has a defect (rough condition, unappealing, bad drainage/pool/neighbors/lot/etc.) Owner Fi might be the way to go. 

    If OF is your ES of choice, I STRONGLY suggest you:

    1) Auction off the down payment as your primary consideration for the sale (20% MINIMUM + closing costs, etc. - someone with 50% downpayment and 550 FICO beats someone with $2000 down and FICO of 800),

    2) Use an experienced Real Estate attorney or an RMLO to draw up the docs,

    3) Do a real closing at a real title office/attorney's office,

    4) Have an experienced Real Estate attorney check all docs (especially loan/CYA docs) for compliance before closing,

    5) Talk to an experienced insurance agent who specializes in OF insurance and a) force the buyer to maintain the recommended insurance as per the agent's direction and b) you carry your own insurance, and

    6) Hire a professional mortgage servicer to service the loan (and escrow, if that is the recommendation) and give them the explicit direction that they a) are to aggressively collect mortgage payments, late fees, etc., b) report the buyer's monthly payment history to one of the big 3 credit reporting agencies (make sure the buyer knows this), begin foreclosure proceedings the first day allowable by law/contract each and every time the buyer is late with a mortgage payment (that'll only happen once or twice).

    This is what we do on our OFs.

    If there is anything else I or my staff can do to help you grow your business, please let me know.

    -Greg

    Greg Wilson

    The REI Mentor
  • 20 Apr 2016 1:14 PM
    Quote
    Reply # 3974141 on 3971602
    Deleted user

    Tod,

    Greg Wilson gave you the whole picture in one post.  You can't get any better than that.  I do everything that Greg does with my owner financed properties.  The only tidbit I would add to what Greg said is that if you do choose to make it Retail Ready and sell it to a Traditional Buyer then decide how you are going to handle your Capital Gains Tax hit on that lump sum.  

    So one advantage of Selling your house with Owner Financing would be for that very reason...you don't have to be hit with taxes all at once.  The income you receive from the monthly mortgage payments plus interest will be what you pay taxes on.  

    Not only that, but if you do decide to carry a Note, you can even sell a partial of the note to an investor if for some reason you need to pull some cash out.   You can probably ask those questions on here.  Would anyone from this Forum buy a partial?  If so, how long do you want it to be seasoned before you will consider buying it?  

    Grant you, they won't pay the full amount...let's say your payments P&I are $700.00 per month and you want to sell 10 years of that to someone, then you need to ask for something less than face value of those payments.  It's like buying a Savings Bond.  

    By doing this strategy, you not only save on a big tax hit from the cash sale, but you are earning interest and realizing a larger profit then you would if you sell it to a Retail Buyer today.  Remember the "Time Value of Money" theory.  

    Or you can defer that tax hit using a 1031 exchange.  You can ask your CPA how that works.  You have a few months to roll that money into another investment property.  

    If you decide to sell now, let me know because I will buy it As-Is and save you time and money on making any repairs/make-ready plus the listing time, commissions and waiting for the picky end buyer to close.

    I had to throw that in there.  Afterall, I do buy real estate.  

    You can contact me at 214-704-8617.
Powered by Wild Apricot Membership Software