Owner Financing

[draegarfrog 0]

Help needed. I have a motivated owner that may owner finance her home to me. It's paid off, she just bought another house and is closing within a week. She is planning on leaving the island to relocate to Washington State. From our conversation she doesn't want to rent it. She tried to owner finance to some relatives but they weren't interested. She was going to let her niece have it for $600 a month, rent in her area is $1100-$1200. Here's the kicker ZERO PERCENT interest! She was talking about $600 for 25 years = $180,000. The only problem I see is the houses in her area are selling for $130,000. How should I negotiate this animal? If I secured this deal and RTO'd it for $1200 a month thats around $450 a month positive cash flow minus tax & insurance. But with an RTO I can't price it at $180 when prices in her area are in the $140s.

What I was thinking is take it and owner finance it to someone else at 8-10% interest. But how could I do this since I won't have legal title?

[MichaelC 160]

There's an old expression in real estate: you give terms, you get price. Here we have a homeowner giving you what can only be described as terms of a lifetime. So paying top dollar, even an above market price according to you, shouldn't be considered a bad thing. And if your assessment of the rental market is accurate, keep this property for the cash flow. Why even bother setting it up as a lease purchase, when a straight rental will net you a few hundred bucks a month? Make it easy on yourself.

Now, having said this, make your offer for less than she is asking, and have your reasons why available. Show her the comps, for example. But be willing to negotiate and be flexible. You won't find too many deals with 0% seller financing.

[draegarfrog 0]

Thanks MC. I actually thought about that but it's good to hear it from you. I couldn't believe this lady when she said $600 a month until $180k is paid up.

[draegarfrog 0]

Signed the contract today $600 a month, $150k.

[MichaelC 160]

Signed the contract today $600 a month, $150k.

Dude! Congratulations! What are your plans with it now?

[draegarfrog 0]

Thanks MC! What do you think of this plan? I have a tenant/buyer who has terrible credit due to bankrupty. His wife took him to the cleaners when they divorced. He's renting now and is wants to own. He only has $2500-$3000 option money. He says he can afford $1200 a month. I'm thinking of doing a rent to own for 1-2 years and letting him know when he's ready to buy I'll need $7k to convert it to owner financing. I'll keep the payments the same and give him 9% interest. That's $1200 a month for 30 years. The house will be paid up in 20 years at $600 a month, sooner if I pay more. I locked the house up with a Residetial Lease w/ Option to purchase this way I can close later and save some money for closing. It's going to cost around $3-$4k to close. Plus I'm not sure how to do this (close) I know I can go to a title company and they can handle everything. Would I just bring the contract to them?

[MichaelC 160]

I have a tenant/buyer who has terrible credit due to bankrupty. His wife took him to the cleaners when they divorced.

Ain't love grand?

 

My suggestion is to set him up with a Rent to Own for 12 months, not 24. You can always extend the deal if he proves to be a decent tenant in the interim. But having that option keeps you in control of the deal.

$2,500 to $3,000 is on the low end of acceptable, but all things considered, if this guy is serious and ready to do business today, he is worth considering. A bird in the hand. . .

Then, make it easy on yourself. If he actually follows through and exercises his option, let him arrange his financing and cash you out. Unless there is some specific reason you want to carry a note. If he cashes you out, at the close you will do the same with your seller, and you will have minimal to zero closing costs.

As for how to close, that differs from with the location you're in, and can even vary between title companies. Call one or two, explain the deal, and hear what they say. Prepare in advance so when the time comes it's smooth sailing.

[draegarfrog 0]

Ok, your right 1 year at a time. This way at the end of the year I have the option to extend or cancel. $2500-$3000 is low, but this is Guam. When I first started I was asking $5k and couldn't get anyone. $3k is manageble for most hardworking, middleclass folks. He may have a problem with bank financing but that's ok. I'll work out an owner financing option when and if he has a bigger downpayment. I would rather do that then have him cash me out. Remember this is a $600 a month interest free loan. Anyways, I have alot of options with this property. Now do I go to a title company and record a memorandum and have them hold the deed?

[MichaelC 160]

Now do I go to a title company and record a memorandum and have them hold the deed?

Hehe. Good question. You're in Guam, so I was hoping you could tell me. Speak with someone local who is knowledgeable about what you want to do. They will be able to point you in the right direction.

[draegarfrog 0]

I'm finding out right now, I've been in contact with a title company on Guam and the lady seems very helpful. According to her they will handle the recording of the option at land management (Guam doesn't have a county courthouse) She says I have to open escrow. MC, by the way I'm still in Okinawa, I negotiated this deal over the phone. I had a buddy who is a rehabber take a look at the property and send me digitals.

[MichaelC 160]

I'm finding out right now, I've been in contact with a title company on Guam and the lady seems very helpful. According to her they will handle the recording of the option at land management (Guam doesn't have a county courthouse) She says I have to open escrow. MC, by the way I'm still in Okinawa, I negotiated this deal over the phone. I had a buddy who is a rehabber take a look at the property and send me digitals.

For a n00b, you sure are stepping fancy on your first deal. Nice footwork, draegarfrog. :xwink:

[draegarfrog 0]

Thanks, I think I'm starting to figure it out. The 6 CA's that I had were all bad deals that I had to give back. The sellers were not motivated or they were in areas that were hard to sell. Lesson's learned. When I close the loop on this one I plan on writing a "What I did wrong and how I fixed it" piece. :xwink:

[MichaelC 160]

Thanks, I think I'm starting to figure it out. The 6 CA's that I had were all bad deals that I had to give back. The sellers were not motivated or they were in areas that were hard to sell. Lesson's learned. When I close the loop on this one I plan on writing a "What I did wrong and how I fixed it" piece. :xwink:

As we get older, we get wiser, draegarfrog. What you wrote above just tells me you are running about normal. A mistake is only a bad thing if you don't learn from it. Please feel free to share your experiences, good and bad. We can all learn from them.

[<Steve> 82]

Nice going draegarfrog!!! It's a beautiful thing!