Yes, these are of course safer. In all transactions, there will be some risk; you are trying to keep yours at a minimum.
Buying below market and being bank for the new buyer is profitable, just insure you have reserves for emergencies and the hard times when buyers are not paying. Down payments can help alleviate a lot of problems.
Buying a SFH(125K) at market price by 5 % down and 95% financing @ 6.5%. AND then reselling for “0 down move in” at full price with owner financing(myself) at 11%. It would give a positive cash flow of $400approx. Is this deal thin.
Any pitfalls. I have 8-10k to invest and good credit.
Since you are financing yourself, you could probably find a buyer with some type of down payment, at least 5%, I would go for 10% and then negotiate down, but nothing less than 5%. Since your credit is good you should try to find a property that you could buy for less than market value and since the financing is easier for buyer, sell above market value. Believe me, there are plenty of people who are paying more for rent than they could qualify for. As Tim stated you need to be prepared for the worst scenario. If you get a down payment which is more than you paid down, you can draw from that down payment in an emergency.
If the buyer pays 6 months, then decides not to pay while you foreclose on them; do you have reserves for this?
If the buyer starts tearing the place up and then decides to walk out on your contract, do you have reserves to fix everything back up?
Get some money up front from the buyer, and screen them. If you are going to sell on contract as owner financing, you are now the bank to these people. The $400 a month is nice, but do you have reserves, are you aware of your role as the financier in this transaction, do you know the laws in your area about evictions vs foreclosure, do you have solid contracts to deal with owner financing, are you sure you are making money with $0 down and only selling it for $6k more than what you paid for it?
I don’t know your area, but looking at it like what you have posted, the buyers have no stake in the house. $0 down and high interest. If they find out in 6 months that they could get financing at 7% in a different area near their work, and now they have $5k saved up; they may be the kind of people to walk out since they are out nothing. I would want something.
Could not agree more PLUS I think if they have no money in to the place, they will not stick if there is any problems…and if they have bad credit, you loose that leverage of reporting to credit agents.
Advertise it as, you have a down payment, I will finance you no questions asked…
Lastly if they went BK it would be at least 2 months before you could even ask for a payment, and I saw a trick to make it much longer then that…best of luck.
I understand what you are looking at. You looked at the difference between pmnts with differetn interest rates.
That is good for a kicker on income BUT I think a moer important first issue should ignore the L/O person. Assume he walks in a week aand you are holding the house (in best case wioth no repairs due to tenant (or L/O person). Also assume you need to get out of this deal quickly because “something” financially came up. Can you unload this house at full price within 30 days? Is your market really that hot?
So what do you think it would sell at within 30 days time and take off 10%. Much safer.
Now thats begginner thinking. What will it take worst case to break even. And it is correct thinking. But the pro will say…now…beyond the above number…how LOW will he GO???
NOOOOOW …after negotiating a better purchase price, comes the discussion of the person you are selling to. Thats another story…