Owner financing vs. mortgage company - Posted by chill

Posted by chill on May 04, 1999 at 11:40:19:

Thanks David, for your good suggestions.

The owner is unmotivated, won’t budge. Doesn’t need to sell. I am prepared to move on, but, in this case, I think the profit is in the equity.

Student rentals very close to large university. Will probably always rent to students. It is rented too low, but the guy will only sell if you will honor the leases until Aug. 2000. After that one can go up. Other major things going on around it – city may want the property in 1-3 years.

The owner is smart and tough. He built 43 houses like this one and has rented over the years and now has 7 left. Sells them off at his own terms.

I’d be willing to sell, but he is asking about what they are worth now. Owner is 75 and doesn’t want anything longer than 7-8 yrs.

I guess I need to walk this one – a friend is also bidding on one of them and can’t get one inch off his terms either.

Owner financing vs. mortgage company - Posted by chill

Posted by chill on May 04, 1999 at 09:36:09:

I know what Ron says about not dealing with banks/mortgage companies.

I am looking at a property to rent – already leased for the next year. Owner will carry financing but only at 12% and only for 8 years. That way it would have a negative cash flow, at least until a year from now when I could raise the rents. If I were to finance it for say 15 years with a mortgage company, I should be able to get 7% or maybe a little less for 15 years and have a positve cash flow. Also, it seems like a loan while interest rates are so low will be worth more if they go up in a few years (which they seem likely to do).

I would like opinions and expert advice.

Re: Owner financing vs. mortgage company - Posted by David Alexander

Posted by David Alexander on May 04, 1999 at 11:11:38:

I think it is always better to get Owner Financing, even if it is a little higher. You always have a chance of discounting later, more flexibility and some control of the note itself, like clauses to do with resell, late fees etc.

When negotiating on interest rate, try this, negotiate in 1/4 to 1/8 %, and they will usually do the same.
Also ask what they plan on doing with the money if you give them all cash. If it is just going in a CD then there is no reason to give them that much of an interest rate, not when he would only be paid 4% or so by a bank. If he is going to buy something maybe you could purchase that at discount or better financing and trade

As far as your deal goes, post the numbers, FMV included.

If you absolutely have to give 12%, then the profit spread better be there. And if so, maybe he will let the amortization be 360, but still have the balloon, or maybe Interest only with the balloon.

Last but not least, why rent? Someone willing to Owner Finance sets up a perfect deal to resell for hassle free cash flow.

David Alexander