Owner Financing - Posted by Mcmuney

Posted by Mike-BC on February 23, 2001 at 18:16:32:

There are many reasons people are motivated to sell profitable revenue properties. In my case, the owner I bought from wanted to retire and move to another city to be closer to his daughter. Other reasons include death, divorce, and bankruptcy.

The seller is motviated to carry financing because the worse case scenario is that he gets his property back if you default on your payments.

I added the caution because as you add financing, your payments increase. Many sellers and realtors don’t tell the whole story when it comes to operating expenses which includes building maintenance, insurance, taxes, city utilities, heat and light, vacancies, advertising, and management fees if you use a management company. Depending on your area, the age and condition of the property and the local rental market, you can count on 30 - 50% of gross revenues to be eaten up by operating costs. What is left over is used to service debt.

Owner Financing - Posted by Mcmuney

Posted by Mcmuney on February 22, 2001 at 13:45:28:

How exactly does this work?

Re: Owner Financing - Posted by Mike-BC

Posted by Mike-BC on February 22, 2001 at 23:34:21:

Sellers may also finance a portion of the sale price. This is useful when you are able to secure a mortgage from the bank but you do not have enough money for the down payment. Have the seller finance all or part of the down payment so that you can qualify for the bank mortgage.

If this is a revenue property, such as a multi-family, there are advantages to the seller for carrying financing. First he defers a portion of the capital gains derived from the sale. Secondly, he creates an income stream from the payments on the financing.

One caution, be sure that the income generated by the property will meet all of the financing payments as well as all operating costs before signing.


Re: Owner Financing - Posted by GT

Posted by GT on February 22, 2001 at 19:14:57:

“Owner financing” means that you may be doing a deal directly with the seller of the property.

They will “finance” the whole property, the down payment, or any part of the transaction.

In other words, you may not be going to the bank to get a loan on the property if the seller is financing the whole property purchase for you. The seller becomes the “bank”. Your payments are made directly to the seller.

It doesn’t matter if the seller already has a bank loan on the property. Just make sure any mortgage the seller currently has on the property doesn’t exceed your agreed upon purchase price.

There are many ways to put together a seller financed deal. If the seller is willing to do that, it could mean they’re very motivated to get rid of the property, or they’re a real estate investor who buys and sells property this way.

If you have any other questions, just ask.


Re: Owner Financing - Posted by Mcmuney

Posted by Mcmuney on February 23, 2001 at 11:37:00:

Thanks for explaining the seller financing. It helped me to understand tremendously.

I have a concern though. If the seller owns a revenue property, why would he/she sell if it is generating more than his/her financing payments + operating costs? If he/she is simply trying to get out of the business, they would have no reason to offer “seller financing” because this would take them right back to be hassled with receiving payments from the buyer (instead of the tenants)… right?

I ask the above question because you stated on your last sentence to be cautious, and that the buyer should not sign unless the income generated from the proper will meet all the financing payments as well as all operating costs.

Please advise!

Re: Owner Financing - Posted by Mcmuney

Posted by Mcmuney on February 23, 2001 at 11:39:34:

Thanks for the explanation. It’s much clearer now.

I do have more questions though. Here’s one:

How do buyers come out with money in their pocket after a close??? If they do, is it FREE money or is just part of the loan… in cash?