Re: Which is better Owner or Bank Financing - Posted by JPiper
Posted by JPiper on March 16, 2001 at 10:35:20:
Owner financing is almost always better in my opinion?.but it depends too.
Take this situation for example. You call this a ?wrap around?. That describes a lot of different types of financing, all of which have one problem or another. Are you knowledgeable enough to handle the risks in a ?wrap around???
If this is a contract for deed?you won?t have the deed. With bank financing you will. Is this worth something to you? It should be. Not having the deed presents a risk to you.
How are the underlying payments handled? With virtually any form of ?wraparound? presents a risk in terms of the payment of the underlying loan. What if you pay the seller, and the seller doesn?t pay his underlying loan? Do you know how to control this risk?
The term ?owner financing? is sometimes used loosely?and sometimes is NOT descriptive of the type of deal you?re involved in. I would say that?s the case here.
Aside from this, ?owner financing? is going to always be cheaper in terms of upfront costs. Even if the rate is higher, this may still be worth it. In this case, I would say it definitely is. In fact, my guess is you can get this rate somewhat lower with some negotiation.
You can almost ALWAYS negotiate a discount of early payoff on any type of owner financing. The LEAST likely to do this though in my opinion is the ?wraparound?, because they are the MOST apt to have the least equity in their deal.
One point not mentioned below is that with an owner you may well have the ability to renegotiate your loan terms if you get into difficulty?.something that I would believe is more difficult with an institution.
But the guiding principle in THIS particular situation in my mind would be what type of ?wraparound? this is, and whether YOU have the ability to control the risk that may be present in this type of financing.