The POWER of Owner Financing!
My name is Dillon Banning, president of Banning Financial- a note and mortgage liquidation company. We buy owner financed paper all over the nation.
About a 18 months ago I listed a property we owned for sale with a real estate agent in my local area.
When I chose to go with a real estate agent, I simply wanted to liquidate one of the assets my company had kept on its books for some time.
There was nothing wrong with the property, it was a nice 3Br/1Ba that we were listing at FMV for $39,000.00, even though the property would easily appraise at $45K. This is what we started the listing at until the property was having trouble selling- This is when we dropped the price. I figured the discount would be to much if I were to sell the note due to a lower FICO, thus the reasoning behind choosing an agent… or so I thought.
When my company makes a note purchase, we typically carry the paper for the P & I, but in this case, I wanted a small kitty to play with so I was going to shift this to a friend of mine for a small discount.
Well, time passed…and passed…and passed and continued to pass with nothing happening. The house just wasn’t selling, particularly because the ceilings in the front part of the house were unusually low. The house was built in 1944 and was in great condition, but the original builders didn’t make the head room any more than 7ft tall.
So after 18 long months, the contract with the agent was finally up and I decided I was going to owner finance and sell the paper.
I posted my “Owner Financing w/ Good Credit” sign and made a flyer to leave all over town that said:
Own this home with with No Money Down and No Closing Costs! Payments of only $394.00 a month!
The next day my phone was ringing off the hook. The day after that I showed, and sold, the home.
The buyers had a credit score of 642, and 636. This is how I structured the deal:
N = 360 (30 yr. note)
I = 10%
PMT = $394.90/mo
PV = $45,000 (Selling Price)
So what if I could go one further and offer payments of $294.00 a month? How? Because as everybody knows, refinance money is much easier to obtain than new money. With a 10% interest rate and 12 payments already made, especially with the approved credit, any bank out there would just love to give my borrowers a 7% rate…This would make their payment aprox. $294 a month…
They had been paying $550.00 a month in rent - I gave this couple a first time homeowner’s dream!
So why didn’t I take any money down? Wouldn’t I want the borrowers to have some sort of equity in the property? Isn’t that more of a risk?
Heres why: If I were to have taken $5,000 and started with a beginning balance of $40,000 on top of all the other terms involved, my investor would have offered around $30,000. (A $15K discount) Without a down payment, the discount put the purchase price at $39,000…only a $6K discount…(A Real difference of about $4,000)
Owner Financing can 9 times out of 10 to sell your property faster than any real estate agent and the MLS probably ever could. It qualifies more buyers. (No offense to any agents.) It doesn’t provide any red tape, and in a lot of cases it can even make you $5-$15K above and beyond the original sales price by utilizing creative financing solutions and a partial note sale.