What interest rate do you typically charge your buyers when owner financing? I know this isn’t a black-or-white answer, but I’m trying to get a ballpark figure on what investors generally charge. For example, if I buy a property a 30yr loan carrying a 7% int rate and my buyer has bruised credit, would 9% seem reasonable? 10%? 11%? more? less? Or do you just add x% to the going rate? Just getting a feel for what other investors do here. Thanks!
I look at what they would be getting WHEN they are able to get a loan. Most types of owner financing are limited to a set # of years (example: 2 year balloon) before it has to be refi’ed. You don’t want to have your interest rate and therefore, your payment, less than what it will be when that time comes.
Right now, rates for low credit on owner occuppied notes is in the 8-11% range. Generally, I try to get 9-10% OR 2% over my interest rate.
Raj
Good points made by Roger. If it’s to your benefit, you could also charge whatever interest rate would make the payment equal to the market rent. If you think about it, they are getting equity and tax benefits with owner financing. As long as the cost of owner financing and renting are the same, it’s a good deal for them. This may not work in all areas though.
Good points - both of you. Thanks for the insight!
The bottom line is you are taking them on as a risky buyer so charging them 12% is not uncommon along, of course, with a higher purchase price. Plus you could even sell that note to note investors if you didn’t want the headaches.
Nate-WI