Forget Landlording - Owner Financing Rocks! :)

General Real Estate Investing
1

I used to be a landlord back in Virginia, but since I moved to TX, I have gained some interesting experiences with owner financing. here in San Antonio, we buy a house for about $50,000 and then owner finance it at 10% to a carefully qualified buyer.

For us it works pretty well. Benefits I have seen:

  • cap rate of over 15% - Have two props that have 17% cap rates.
  • no repair costs, no property management costs.
  • no stress :slight_smile:
  • Tax/ins are my owner expenses (we use land contract, so house is in my name)

So it works great. But in my experience, you really have to know what you are doing for it to work. For example, you have to know where to buy and not to buy in your city. If you buy in the wrong place, you may have trouble filling the house with a good buyer.

In my experience, with the right mentor and the right location, owner financing is a fantastic buy and hold. I have two and I love it here in Texas.

Have any of you ever tried this where you are? Wonder how well it works in other markets. Thanks!

2

I totally agree! Contract for Deeds, Lease Options, Subject To, Wrap around mortgages, straight out owner financing on free and clear properties … they are the best ways to go.
I started doing Contracts for Deeds back in the '90s. They are basically glorified rental agreements - the buyer/tenant is not on title, therefore you can evict as you would a regular tenant, but at the same time they are responsible for all the expenses, maintenance, etc. associated with the property. And you can expect a larger downpayment than a regular lease, since they are considered “owners.”
Plus the tenant/buyer takes more pride in the property and maintains it, since he/she plans on living there and buy it out or sell it at some point.
It is a win-win situation.
I have used these strategies in Hawaii, Midwest and East Coast, so I feel pretty confident that they work anywhere :biggrin

3

Well, things have changed.

A Land Contract is a “note” and is considered “seller financing.”

As such, it is subject to Frank/Dodd and SAFE Act regulations.

For example, it is now against the law to include a balloon that occurs in less than 60 months. It is also against the law to charge more than 8 pts above the Federal Reserve Prime Rate, and it is now illegal to offer an adjustable rate interest.

Also, if you fail to “officially” qualify your buyer through a licensed loan originator, and the borrower subsequently defaults, the defaulted buyer may sue for all his money back, BECAUSE you failed to properly qualify the buyer.

Basically, unless your buyer effectively qualifies for conventional financing, you’re accepting all the risk of default, since the buyer may become a predator borrower, and sue for the return of all his money paid to you, including including principal, interest, taxes, insurance, HOA’s, and his down payment.

Furthermore, the buyer may just change his mind, and “decide” he can’t afford the payments, and then stop paying, force you to offer “financial counseling” and still demand a return of every penny he paid you.

Meantime in California, a Land Contract conveys title. So, it’s a waste of time to offer a Land Contract, if you’re attempting to limit your liability to an iffy buyer.

IN the event of default, and your inability to get the deadbeat out of your house voluntarily, you’ll be forced to judicially foreclose, and in some cases, proceed with an eviction, and/or unlawful detainer action. This can take MONTHS!

So, your Land Contract terms have to conform to Frank/Dodd, and Land Contracts may convey title in your state. So, check the laws (find a a real estate contract attorney), before you offer financing on a Land Contract.