Is this a good idea? They will finance more than a bank. Seems like the onwer would not finance with low, or no money, down if he knew his property would not generate the rental revenue to pay for the loan. Am I wrong on this?
Seems like the onwer would not finance with low, or no money, down if he knew his property would not generate the rental revenue to pay for the loan. Am I wrong on this?
Why would you want to buy a property that won’t cash flow?
Mike
If a seller knew you wouldn’t be able to make the payment he probably wouldn’t do owner financing (pay $1M for a property with a potential gross income of $2,000/month). He might if you were a very credible buyer and were buying for appreciation or something…
But as propertymanager said, you wouldn’t be very smart to overpay for a property in the first place.
Maybe yes, maybe no. Run your own figures and double check every thing.
Owner financing can be nice to have because it is so much easier than jumping through the hoops for a bank mortgage.
But you also have to pencil out all the costs of obtaining the money. How long do you plan to hold the building? What are the differences in your costs for the different interest rates? Owner carry is normally 3%-5% higher than what the bank will give you (but not always).
Owner carry doesn’t have points or origination charges. So you have to balance that out with the difference in interest rates.
Unless you get out your calculator, you won’t know which option is better. Ypu also won’t know whether or not the building will carry itself without doing the math.
I would not purchase something if it would not at least pay for itself in the beginning. That’s why I have to go out of state. I can’t do that here in CA without a high percentage down. That would just be stupid.
I asked about owner financing to see if it was a good choice or a bad choice compared to bank financing. I don’t really care about getting credit, I have enough and it’s awesome. I just need a way to break into real estate investment with no, or very little, money down. It just wouldn’t make sense to me for an onwer to to finance if he didn’t believe that the investee couldn’t make the payments.
Thanks for the feedback.
Brian, on the west coast, real estate rarely pays all of it’s own expenses, so the seller might assume that you have other funds to make your monthly payments with.
Don’t make the mistake of automatically thinking that he won’t owner carry if the property won’t cash flow. It’s your job to learn whether you can afford the property or not.
Very often, owner carry is offered as a sweetener to help with the down payment, and the banks will fnance the other 80%
Or owner carry is offered on properties that are not financable.
Or, very rarely, a seller just wants out with a steady retirement income.
None of that quarantees that a property will pay for itself. You still have to do your figures and your oiwn homework.