What Is Owner Financing

What Is Owner Financing

Owner financing, occurs when the seller of a home finances all or a portion the sale of his or her own property. This is often referred to in real estate ads as "Owner Will Carry" or similar wording, meaning that the owner of the property will, in effect, act as a bank and loan the purchaser all or part of the money needed to purchase the owner's property.

There can be several advantages to the seller for carrying a note, as it is also known. There can be tax advantages in spreading out the time over which an owner receives the money from the sale of a property. Also, many owners simply like the idea that they can receive a monthly income from a property even after they have sold it - and no longer have to worry about repairing leaky roofs or replacing dead water heaters.

There is a nice monetary inducement to the owner to carry paper as well - the owner can charge the buyer interest on the money that the owner is lending to the buyer. In this way not only does the owner collect a monthly mortgage payment on the property he or she has sold, but the owner collects interest as well, in effect increasing the owner's overall sales price of the property.

In order to protect themselves, some homeowners require that the buyer make their monthly payments into an escrow account held by a bank or other lending institution, and they require the borrower to place a Quit Claim Deed into the escrow account with instructions that if a payment is late by a certain number of days then the escrow officer will automatically file the Quit Claim Deed, restoring the house to the former owner instantly.

If this were to happen the buyer would not only lose title to the property but would also lose any and all payments already made on the property. This is a powerful incentive for the buyer to make all payments in a timely manner.

A more pragmatic reason, perhaps, why some homeowners agree to carry a note is to increase the universe of potential purchasers for their property. The way this works is easy to understand. If the homeowner is making a portion of the loan on the property then the borrower will need to qualify for a smaller loan from a bank or other financial institution, meaning that a larger number of people will be able to qualify for any bank loan that might be required to purchase the property. If the seller finances the entire selling price of the property then buyers do not need to qualify for a bank or other financial institution loan at all. This can greatly increase the number of people who are interested in buying a piece of property.

For starters if the owner is financing all of a sale then a borrower does not have to qualify for a loan at a traditional financial institution. Even if the seller only finances a portion of the loan the borrower benefits by having to qualify for a smaller loan from a traditional mortgage source.

Additionally, when a seller finances a property there are no points or closing costs for the buyer to pay, saving the buyer potentially several thousand dollars on the transaction. And while the seller of the property may charge the same interest rate that a bank or other financial institution would charge, it is sometimes possible for a buyer to actually end up paying a slightly lower interest rate if the seller finances the sale since more aspects of the sale are open to negotiation than may be possible when dealing with a traditional lender.

Many factors can influence whether the seller of a property is willing to carry all or a portion of the sales price on a piece of property. In many cases, however, the determining factor is the overall condition of the market itself.

When homes become difficult to sell - when it is a buyer's market, in other words - then sellers are more inclined to do whatever is necessary to increase their chances of a sales and so owner financing is more readily available.

Conversely, when homes are selling quickly and it is a seller's market, then sellers have little incentive to carry back a mortgage.

So your chances of finding an owner willing to carry back a mortgage are largely dependent on the current housing market. But regardless of prevailing market conditions, it never hurts to ask if an owner is willing to carry paper.

__________________

Anita
******************************************
TWITTER - anitarny / FACEBOOK - anitarny

"FAILURE IS NOT AN OPTION"


Seller Financing is what we do!

Hi All,

We have been actively marketing our seller financing services around the country. We will do this service for residential, commercial, and business sales. We help take the FEAR out of owner carry back transactions. We help the sellers make INFORMED decisions rather than blind ones.
On top of all that our notes can be sold on the secondary market. Currently, 75% of available notes are not salable on the secondary market.
We can REALLY help the jumbo and commercial markets since they can't get conventional financing. If you have a question, contact us with a PM or email us at tom@allstatesinvestments.com.

__________________

TAKING RISKS ARE WHAT SETS US APART...SUCCESS IS KNOWING YOU WERE RIGHT! T4


Seller Financing

Hey Anita,

Great article. On the Quit Claim Deed we have been told (FYI, we are not giving legal advice since we are not attorneys) that you should be very careful with this since we were told it won't hold up in court when done at the closing. The reason for this is you are signing the document prior to the Quit Claim Deed being invoked.

Here are the two options with Seller Finance. The Seller can either do a Contract for Deed (land contract) or they can do a Wrap note.

The Contract for Deed keeps the deed in the owner (Sellers) of the properties name. This is good and bad. Since the Deed hasn't transferred if the owner does not get paid they do not have to go through foreclosure. They simply need to evict the person not paying just like you would a renter. A few negatives for the seller on this are if they owe any money on the property it is still under the their name and they are still responsible for paying it. Also this note can not be sold on the secondary market so the seller has to hold the note until it is paid off or until the buyer refinances the loan. This can mean a very long relationship with between the buyer and seller. A lot of people doing seller financing do not realize that they can sell their notes (in full or partial) if they are written properly. A negative for the buyer is they do not have their name on the deed even though they are paying monthly payments. This type of contract does not transfer the deed until the entire note is paid off. The good news is that you can buy property without the bank.

The second type of Seller Financing is a Wrap note. This is when the person doing the Seller Financing takes their mortgage and wraps the new note around theirs. For example, they are selling the house for $100,000 and are getting a $20,000 down payment. The seller still owes $50,000 on the house. They can wrap the $50,000 underlying debt into the note they are creating for the $80,000. Since the Deed on the property transfers ownership this note is sale-able on the secondary market if it is structured correctly. This can be a win for the buyer since you don't have to worry about their credit since the seller is acting as the bank. It is also great for the seller since they can sell the note (like I said if it is structured correctly) either partial or in its entirety or they can keep the note and get a monthly income.

That is why it is so great for us to be Seller Finance Specialist because we understand all the ins and outs of this process and can explain it to both parties.

__________________

TAKING RISKS ARE WHAT SETS US APART...SUCCESS IS KNOWING YOU WERE RIGHT! T4


Seller Financing

Hey Anita,

Great article. On the Quit Claim Deed we have been told (FYI, we are not giving legal advice since we are not attorneys) that you should be very careful with this since we were told it won't hold up in court when done at the closing. The reason for this is you are signing the document prior to the Quit Claim Deed being invoked.

Here are the two options with Seller Finance. The Seller can either do a Contract for Deed (land contract) or they can do a Wrap note.

The Contract for Deed keeps the deed in the owner (Sellers) of the properties name. This is good and bad. Since the Deed hasn't transferred if the owner does not get paid they do not have to go through foreclosure. They simply need to evict the person not paying just like you would a renter. A few negatives for the seller on this are if they owe any money on the property it is still under the their name and they are still responsible for paying it. Also this note can not be sold on the secondary market so the seller has to hold the note until it is paid off or until the buyer refinances the loan. This can mean a very long relationship with between the buyer and seller. A lot of people doing seller financing do not realize that they can sell their notes (in full or partial) if they are written properly. A negative for the buyer is they do not have their name on the deed even though they are paying monthly payments. This type of contract does not transfer the deed until the entire note is paid off. The good news is that you can buy property without the bank.

The second type of Seller Financing is a Wrap note. This is when the person doing the Seller Financing takes their mortgage and wraps the new note around theirs. For example, they are selling the house for $100,000 and are getting a $20,000 down payment. The seller still owes $50,000 on the house. They can wrap the $50,000 underlying debt into the note they are creating for the $80,000. Since the Deed on the property transfers ownership this note is sale-able on the secondary market if it is structured correctly. This can be a win for the buyer since you don't have to worry about their credit since the seller is acting as the bank. It is also great for the seller since they can sell the note (like I said if it is structured correctly) either partial or in its entirety or they can keep the note and get a monthly income.

That is why it is so great for us to be Seller Finance Specialist because we understand all the ins and outs of this process and can explain it to both parties.

__________________

TAKING RISKS ARE WHAT SETS US APART...SUCCESS IS KNOWING YOU WERE RIGHT! T4


You are RIGHT ON AAA FVision

One of the biggest problems real estate investors face when structuring transactions involving seller financing is the seller's concern for security and assurance that they will be repaid. Let's take a look at a typical example:

You find a potential rental home that you want to purchase from a motivated seller with an attractive long-term, fixed-rate existing first mortgage already in place with a balance of $100,000. You plan to buy the home, rent it out, and hold it for long-term appreciation. The home is worth around $150,000, and the seller is eager to sell for the discounted price of $120,000.

You offer to put down $5,000 in cash and to get a deed of mortgage from the seller by taking title "subject to" their existing first lien mortgage balance of $100,000, and then have the seller agree to take back a second lien mortgage note for the remaining $15,000.

The eager seller is okay with the sale price, okay with your proposed down payment, and okay in allowing you to make the payments on their first lien mortgage for them. But the seller is reluctant because you are not assuming their existing loan.

They recognize that the existing $100,000 bank loan is still in their names and that their credit is still at risk on that loan, and they realize that the $15,000 second lien they would take back seems risky to them if for some reason you don't perform.

You may recall hearing about a financing instrument called a "wrap." Wraps (wraparound mortgages) are security instruments in which the seller agrees to finance the sale of their existing financing by "wrapping" around the existing debt they owe with their own financing provided to the buyer.

You go back to the reluctant seller and "tweak" your offer as follows:

* $120,000 purchase price

* $5,000 cash down payment

* $115,000 to be held by seller as a wraparound mortgage

You explain to the seller that you will make them monthly installment payments on a $115,000 promissory note secured by a purchase money wraparound mortgage that will "encircle" their existing $100,000 bank first lien mortgage.

The seller will collect the payments from you on the $115,000 wraparound note and then in turn make the payments they are still obligated to pay on their existing $100,000 bank debt while retaining the difference. With this new proposal the sellers realize that they are in far better control of the financing and in protecting their equity.

If you do not make the payments on this wraparound mortgage, they will know instantly that you are in default to them while continuing to protect their credit and obligation on the underlying bank first lien mortgage.

Another reason to use a wrap--when selling

One of the investors I deal with recently had a customer that sold a restaurant property for $225,000 to a buyer who put down $60,000 in cash. The buyer formally assumed an existing 8% private loan with payments of $825 per month on a $115,000 first lien mortgage balance. The sellers agreed to finance the $50,000 still due by holding a purchase money second lien mortgage and note.

The way they structured this sale and financing could have been "tweaked" for the benefit of the seller using a wrap around mortgage. To illustrate what they did:

* $225,000 sale price

* $60,000 cash down payment

* $115,000 private 1st mortgage assumed

* $50,000 seller financed second lien mortgage

These second lien mortgage note holders came to us seeking to sell and convert their $50,000 second lien mortgage and note into a cash lump sum. Unfortunately, because of the type of collateral that was involved (a high turnover type restaurant business and property), and the second lien position of the mortgage note, the discounted cash value of their second lien was greatly affected.

A better way to structure the sale

It would have been far better for them to have sold the commercial restaurant property and financed it using a wraparound mortgage (or similar instrument) as follows:

* $225,000 sale price

* $60,000 down payment

* $165,000 balance finance, financed at 10% with wraparound mortgage

By financing the sale using a wraparound mortgage there are several profitable "spreads" the sellers could have created while producing a far more marketable and saleable note in the event they ever wished to sell their paper.

* The $50,000 equity spread that exists within the wraparound mortgage note owed of $165,000 that encircles the existing $115,000 in debt still outstanding on the underlying private first lien mortgage note.

* The 2% interest rate spread between the 10% that would be owed to the property sellers on the $165,000 wraparound mortgage note they will collect and the 8% still owed on the underlying private mortgage note.

* The monthly positive payment spread on the installment payments that would come in on the $165,000 wraparound mortgage note and the payments still to to be made out on the underlying $115,000 private mortgage note.

While its technically true in this example that a wraparound mortgage is a second lien mortgage debt. The structure allows the paper holder greater flexibility.

In the event these sellers ever wished to convert their paper (that is the $165,000 wraparound mortgage note they hold) into a cash sum, the investor who will purchased such a note would be in a position to fund the sellers a lump cash sum for the purchase of their wraparound mortgage note.

Then, from those proceeds advanced, simply pay off the $115,000 underlying first lien mortgage, thereby extinguishing that debt against the property. When the transactions is completed, this process called "unwrapping a wrap" would mean that the former $165,000 wraparound mortgage note would now become a far more desirable first lien mortgage note against the property.

Wraparound notes and mortgages can solve many problems once you become familiar with the concept.

__________________

"I used to say, "Things cost too much." Then my teacher straightened me out on that by saying, "The problem isn't that things cost too much. The problem is that you can't afford it." That's when I finally understand that the problem wasn't "it" - the problem was "ME!"--Jim Rohn


Owner Financing

With the current real estate market going in every direction and for people that have lost their homes and still want home ownership, seller financing has arisen!
So, I find a home owner that will do owner financing and what do I do now. The terms are pretty much dictated my the owner. They can set the interest rate which will be higher that prime (usually double)and the down payment they require which can be from a few thousand to 8-10 thousand, so be prepared for that.
They will dictate monthly payments based on current rent and generally add 100-200 to that payment which will be put into an account that goes to the price of the home. They will also set a limit of term which can be 3-5 years or longer.
If you are in fact buying it from them you will be responsible for taxes and insurance.
Again the terms are mainly dictated by the owner, but sometimes you can negotiate.

Good Luck

Randy Bailiff


Could every potential

Could every potential wholesale deal be owner finance. If so why investors dont do owner financing since the profit margins are much larger?


Owner Finaning

You would probably want to at least pass the idea by the seller either in person or through the real estate agents. It is good to get an idea if it is possibility before hand as many sellers do not want to finance all or even any of the purchase since that means they are tying up their equity for the period of the finance.

If it looks like they may consider it, then you would put it in your purchase contract-the amount, interest rate, payment, and due date.

The seller can only finance the sales price less the buyer's down payment if they own the house free and clear. Most people don't, but some have a substantial equity positon and may consider carrying back a second deed of trust for a portion of the sales price.

Example: If the sales price is $100,000 and they owe $50,000, then their equity is $50,000. You could ask them to carryback $10,000. So, they would get $40,000 cash at closing, since their lender has to be paid the balance of their loan, $50,000, and they are carrying $10,000.

For the buyer, they can count the seller carryback as part of their down payment although they will be probably be required by the lender to put down an additional $10,000, and their loan would be for $80,000. Most lender will require that the seller carryback loan be at least 3 years, and maybe more.

When the sale closes the buyer will need to not only sign loan documents, note and deed of trust, infavor of the bank, but loan documents on the seller carryback loan. The seller carryback loan will be in second position behind the bank's.


owner financing in 2012

Owner financing has to make since for each party. My question is what is the significance of the mortgage placement...for example>

new buyer; position 1
seller; position 2

What is the best legal approach to establishing the owner finance agreement by a FSBO...who has been contacted directly and not working with a company/agent?

__________________

"Your good is better & your better is blessed!!"


Owner financing

In my experience to work a FSBO with owner financing you need a seller who either has: 1) plenty of equity and they would rather earn a higher return secured by the property they are selling than they could get with a CD or other investment. (Many are willing to accept 3 to 6% rates for 20 or more years) Or 2) they are desperate to sell and they have an underlying loan they can wrap. A wrap is where the loan amount and payments on the new loan or contract with the buyer is larger then what the seller owes to the underlying lender. The seller then uses the loan payments received from the buyer to make their payment on the underlying lien. The seller keeps the difference between the two payments.

__________________

The only place success comes before work is in the dictionary

http://www.westcoastequity.com/


Owner Financing

Owner financing is a great tool, which, when used properly, offers benefits to both buyer and seller. Like all tools it can also cause damage to buyers and sellers.

When home sales slow down seller financing as a sales tool always becomes more popular. Problems occur when desperate sellers, driven by the need to sell immediately, get talked into providing owner financing without really understanding the risks or the process. They frequently bypasses some of the steps in the normal home sales process, especially those which protect the seller. When problems arise, and they ALWAYS do, naive sellers don’t know what to do and may not have the paperwork needed to protect their position.

I know people who can hardly wait for the downturn to really take hold because they know the boom in owner financing will create opportunities for them to profit. You do NOT want to find yourself unprepared for dealing with them!

If you educate yourself about owner financing before you negotiate the deal and create the documents, you will be in a position of strength. Use the links at the left to inform yourself about owner financing, but keep in mind whole books are written about seller financing and lawyers sometimes make a career out of specializing in this area. When real money is on the table, professional advice should always be obtained.

Randy Bailiff
Dean Graziosi Real Estate Coach


Seller Financing is up 40%

Randy,

Here is an interesting link showing the breakdown of seller carried transactions by state. According to this information the number of seller financed notes and contracts has jumped about 40% over the past two years. However, the market still has a lot of room to grow and surpass where it was back in 2005.

http://notesellerlist.com/files/ASDS_2012_Note_Outlook.pdf

__________________

The only place success comes before work is in the dictionary

http://www.westcoastequity.com/


Owner financing/property insurance

I have elected not to do owner financing due to the problem of owners ability to obtain their own insurance. My insurance agent says that I cannot keep the policy in my name if the home is owner financed. The large banks have their own in house mortgage companies to insure these properties when the policy lapse. After losing homes due to failure of the mortgagee to maintain insurance, I have elected not to do owner financing. I have elected to do lease/option and adding enough to the payment to cover taxes and insurance.
Jimmy


Owner Financing . . .

will continue to increase in the next few years as the foreclosure fallout continues.

Remember that at the height of the real estate boom, 2005-2006, lots of people were obtaining 10 year interest only loans, which are all due to reset in 2015-2016. That's when I see most of the bleeding to stop - after those foreclosures come out of the pipeline.


Seller Finance

I love reading these posts.

I am also a Coach and would love to explain this to anyone.

Just my 2 cents here. The thing to remember is that in seller financing, there are no rules. So stop trying to figure it out and make up your own rules.

__________________

If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125


Owner Financing

Seller financing is a loan provided by the seller of a property or business to the purchaser. Usually, the purchaser will make some sort of down payment to the seller, and then make installment payments (usually on a monthly basis) over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. In layman's terms, this is when the seller in a transaction offers the buyer a loan rather than the buyer obtaining one from a bank. To a seller this is an investment in which the return is guaranteed. For a buyer it is often beneficial because they may not be able to obtain a loan from a bank. In general the loan is secured by the property being sold. In the event that the buyer defaults the property is repossessed or foreclosed on exactly as it would be by a bank[1].
There are no universal requirements mandated for seller financing. In order to protect both the buyer's and seller's interests, a legally binding Purchase Agreement should be drawn up with the assistance of an attorney and then signed by both parties.

Both the buyer and the seller can make substantial savings in closing costs.
They can negotiate interest rate, repayment schedule, and other conditions of the loan.
The buyer can request special conditions for the purchase, such as inclusion of household appliances.
The borrower does not have to qualify with a loan underwriter.
There are no PMI insurance premiums unless negotiated.
The seller can receive a higher yield on his/her investment by receiving equity with interest.
The seller could negotiate a higher interest rate.
The seller could negotiate a higher selling price.
The property could be sold "as is" so there will be no need for repairs.
The seller could choose which security documents (mortgage, deed of trust, land sales document, etc.) to best secure his/her interest until the loan is paid.

Drawbacks and make not of them:

The buyer could pay the loan in full but still not receive title due to other encumbrances not divulged by or unknown to the seller.
The buyer could make payments faithfully, but the seller might not make payments on any senior financing that may be in place, thus subjecting the property to foreclosure.
The buyer might not have the protection of a home inspection, mortgage insurance, or an appraisal to ensure that he/she is not paying too much for the property.
The seller might not get the buyer’s full credit or employment picture, which could make foreclosure more likely.
Depending upon the security instrument that was used, foreclosure could take up to a year.
The seller could agree to a small down payment from the buyer to assist in the sale, only to have the buyer abandon the property because of the minimal investment that was at stake.

Randy Bailiff
Dean Graziosi Real Estate Investment and Life Coach


This post is loaded with great advice..tagged for future ref.

randybailiff wrote:
Seller financing is a loan provided by the seller of a property or business to the purchaser. Usually, the purchaser will make some sort of down payment to the seller, and then make installment payments (usually on a monthly basis) over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. In layman's terms, this is when the seller in a transaction offers the buyer a loan rather than the buyer obtaining one from a bank. To a seller this is an investment in which the return is guaranteed. For a buyer it is often beneficial because they may not be able to obtain a loan from a bank. In general the loan is secured by the property being sold. In the event that the buyer defaults the property is repossessed or foreclosed on exactly as it would be by a bank[1].
There are no universal requirements mandated for seller financing. In order to protect both the buyer's and seller's interests, a legally binding Purchase Agreement should be drawn up with the assistance of an attorney and then signed by both parties.

Both the buyer and the seller can make substantial savings in closing costs.
They can negotiate interest rate, repayment schedule, and other conditions of the loan.
The buyer can request special conditions for the purchase, such as inclusion of household appliances.
The borrower does not have to qualify with a loan underwriter.
There are no PMI insurance premiums unless negotiated.
The seller can receive a higher yield on his/her investment by receiving equity with interest.
The seller could negotiate a higher interest rate.
The seller could negotiate a higher selling price.
The property could be sold "as is" so there will be no need for repairs.
The seller could choose which security documents (mortgage, deed of trust, land sales document, etc.) to best secure his/her interest until the loan is paid.

Drawbacks and make not of them:

The buyer could pay the loan in full but still not receive title due to other encumbrances not divulged by or unknown to the seller.
The buyer could make payments faithfully, but the seller might not make payments on any senior financing that may be in place, thus subjecting the property to foreclosure.
The buyer might not have the protection of a home inspection, mortgage insurance, or an appraisal to ensure that he/she is not paying too much for the property.
The seller might not get the buyer’s full credit or employment picture, which could make foreclosure more likely.
Depending upon the security instrument that was used, foreclosure could take up to a year.
The seller could agree to a small down payment from the buyer to assist in the sale, only to have the buyer abandon the property because of the minimal investment that was at stake.

Randy Bailiff
Dean Graziosi Real Estate Investment and Life Coach


This advice is worth money

Note_Buyer wrote:
In my experience to work a FSBO with owner financing you need a seller who either has: 1) plenty of equity and they would rather earn a higher return secured by the property they are selling than they could get with a CD or other investment. (Many are willing to accept 3 to 6% rates for 20 or more years) Or 2) they are desperate to sell and they have an underlying loan they can wrap. A wrap is where the loan amount and payments on the new loan or contract with the buyer is larger then what the seller owes to the underlying lender. The seller then uses the loan payments received from the buyer to make their payment on the underlying lien. The seller keeps the difference between the two payments.


Some seller financing caution in this advice

brentm wrote:
You would probably want to at least pass the idea by the seller either in person or through the real estate agents. It is good to get an idea if it is possibility before hand as many sellers do not want to finance all or even any of the purchase since that means they are tying up their equity for the period of the finance.

If it looks like they may consider it, then you would put it in your purchase contract-the amount, interest rate, payment, and due date.

The seller can only finance the sales price less the buyer's down payment if they own the house free and clear. Most people don't, but some have a substantial equity positon and may consider carrying back a second deed of trust for a portion of the sales price.

Example: If the sales price is $100,000 and they owe $50,000, then their equity is $50,000. You could ask them to carryback $10,000. So, they would get $40,000 cash at closing, since their lender has to be paid the balance of their loan, $50,000, and they are carrying $10,000.

For the buyer, they can count the seller carryback as part of their down payment although they will be probably be required by the lender to put down an additional $10,000, and their loan would be for $80,000. Most lender will require that the seller carryback loan be at least 3 years, and maybe more.

When the sale closes the buyer will need to not only sign loan documents, note and deed of trust, infavor of the bank, but loan documents on the seller carryback loan. The seller carryback loan will be in second position behind the bank's.


Steps to remember

Anitarny wrote:
1. You make offer

2. Offer accepted

3. Purchase agreement signed by both parties specifying exact details of purchase such as amount of sale, interest, terms and any special provisions like repairs
in exchange for DP, or amount of dp etc...

4. Warranty Deed (Vendors Lien Deed) prepared and Promissory Note.

5. Transfer of title with title company with recording of lien by seller (same as mortgage company) and deed.

6. NEW Owner now has deed in his name, former owner now has lien (promissory note) on property with a quit claim deed on file in case of breach f contract or failure to pay by NEW Owner.


I love owner financing

Owner financing is the best. Sellers are so much easier to work with than any bank or lending institution. They are flexible, they give you terms generally better than what you can get with a loan. You don't have to pay for origination, appraisal, and most of all the other fees to get a loan. Plus you can generally get 90+ LTV of the property.

Also I love being the bank. Selling homes on a seller financing is amazing. Every month I see the interest i'm making and I understand why banks have so much money.

What I do is create money without actually printing it.

I love buying homes at a cheap price, then I sell them with owner financing. The buyer pays me every month, and I just love collecting the cash flow and interest. That money I collect is created money.

There is a little bit of work managing the account, and making sure they pay on time, but I never sell to anyone that doesn't show a history of being responsible.

Don't pay interest, be the bank and collect it!

Keep moving Forward!!

__________________

I always say Keep Moving Forward! Never Give Up On Your Dreams!

As Matt Larsen says "Feed the Need" - Edge 2013

Follow my daily investing journal and read about the deals I've done and am working on at:

http://www.deangraziosi.com/real-estate-forums/investing-journals/117493...


Leases Unleashed! ~Thank you!

Thank you, Anita and friends! You've cleared up the Lease/Purchase and Lease/Option exit strategies!

Are there states were either one of these or "Rent-to-own" is no longer permitted? I believe Texas is one. Anyone know?

__________________

Happy Prospering! ~Kat, Liberty Residential Investment Acquisitions
• "To every thing there is a season, & a time to every purpose..." ~Ecclesiastes 3:1-8
• "Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy!" ~Dale Carnegie
• "Begin, be bold, and venture to be wise." ~Horace
• "Never, never, never give up." ~Winston Churchill
• "Whatever you do, or dream you can, begin it. Boldness has genius and power and magic in it." ~Johann Wolfgang von Goethe


Lease Options and Sandwich Options

I'm going to explain two real estate investment strategies, lease options and sandwich leases. They are both excellent methods for an investor to lock up properties for rental income with little or no investment of their own cash.

Lease Option

The basic components of a lease option strategy are a lease with monthly lease payments and an option to purchase the property at the end of the lease period. Let's run through an example to illustrate how it works. You're an investor who wants to own a home as a rental property, but you're not sitting on enough cash for a down payment. You may even have a credit score that would make borrowing too expensive.

Through marketing with bandit signs, newspaper and Craigslist ads, or just a word-of-mouth referral, you locate a highly motivated homeowner who hasn't been able to sell their home. They have had the home listed, but have been unable to sell. The home is worth $100,000 in the current market, their mortgage balance is $70,000, and their payments are $525/month with taxes and insurance. One spouse has been laid off their job, and the other has located a better job so they need to move soon. Here's what our investor does:

Offers to lease their home for 3 years with lease payments equal to their house payments.
Pays them $1500 as a non-refundable lease option payment to have the right, but NOT the obligation, to purchase the home at the end of the lease for $80,000.
With a verbal agreement, the investor uses marketing or other methods to located a tenant for the home who is willing to pay $750/month to lease it. They will sign a minimum of a one year lease.
During the 3 year lease, the taxes and insurance will remain as/is, with the escrow in the payment taking care of those items.
Cash out: $525 x 3 for first and last month lease payments and a security deposit = $1575 + $1500 for the lease option payment = $3075.
Cash in: $750 x 3 for first, last & security deposit = $2250.

This is the worst case cash situation, with the investor out of pocket $825. However, they could have negotiated better with the seller and postponed the security deposit, or done away with it altogether, dropping the amount they would be out of pocket to around $300. This isn't bad to control this home and lock in a profitable purchase at the end. It's already worth more than the price to be paid, and will likely appreciate during the 3 year lease. The $250/month positive cash flow will amount to $9000 over the 3 year period. So, even if the investor doesn't exercise their option to purchase the home, they have made a nice profit considering the tiny amount of cash they have invested.

Sandwich Lease

The sandwich lease is just as the name implies, two lease options with the investor in the middle. In this situation, the investor wants to have the option to purchase the property at a discount at the end of the lease period, and they want to find a tenant who wants to purchase the home but can't due to credit problems or a lack of cash for a down payment. Most people in this situation who want to own, are happy to find the right home they can buy with a lease option, having time to improve their credit and get the down payment together.

We're going to use the previous example, but instead of a regular tenant, the investor finds someone who wants to lease-purchase or rent-to-own a home. All of the numbers are the same, except now the tenant buyer wants to own the home at the end of a 3 year matching lease period. The tenant buyer now not only pays the first, last and security deposit up-front, but also a lease option non-refundable payment for the right to buy the home at the end of the lease. Also, the tenant buyer agrees that if they do purchase the home, the price will be $110,000. Now the cash flow for the investor looks like this:

Same $3075 going out to the seller for the first lease option.
$750 x 3 = $2250 + $1500 lease option payment from tenant buyer coming in = $3750.
Investor could also have asked for a higher lease option payment, but was happy with a $675 positive cash flow when both deals are signed.
Seller makes $675 up-front, $250/month for 34 remaining months (first/last paid), and $30,000 gross profit by selling the home for $110,000 but paying only $80,000.
Investor's gross profit is $39,175 with zero dollars of their money invested.

Another advantage of this strategy is that the tenant buyer is hoping to own the home and will take better care of it. In fact, some investors are negotiating leases that require the tenant to pay the first $100 or more of any repairs. As the insurance and taxes are being paid in the original mortgage payment, expenses are minimal.

Randy Bailiff
Dean Graziosi Investment and Life Coach


Thank you, Randy!

Well explained...Thank you, Randy! I appreciate you sharing your knowledge. Laughing out loud

__________________

Happy Prospering! ~Kat, Liberty Residential Investment Acquisitions
• "To every thing there is a season, & a time to every purpose..." ~Ecclesiastes 3:1-8
• "Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy!" ~Dale Carnegie
• "Begin, be bold, and venture to be wise." ~Horace
• "Never, never, never give up." ~Winston Churchill
• "Whatever you do, or dream you can, begin it. Boldness has genius and power and magic in it." ~Johann Wolfgang von Goethe


Owner Finance

When you owner finance where do you get the warranty deed and who pays for title transfer ? Do you let title company handle this ?

Thanks
Lexia


Edward...

Hey Edward,

Check out this thread: http://www.deangraziosi.com/real-estate-forums/profit-real-estate-right-...

It should help give you the information you are looking for.

Also, make sure to read at least one of Dean's books. Even if you are tight on money, you can probably find one of them in your local library.

Good luck to you,

__________________

Stephan Roberts
"In absence of clearly defined goals, we become strangely loyal to performing daily acts of trivia!"

Here is a FREE property analyzer I've found:

https://tvallc.infusionsoft.com/go/RehabLite/sroberts/

It's a great tool to use to help analyze your deals (and did I mention it's FREE)! But, you really should spend the $97 and get the full premium edition! IT'S AWESOME!!


In addition, it is really

In addition, it is really rare that you could be able to buy a house which a seller will finance for you. Owner Financing is when part or all of the purchase price, less the buyer's down payment, is carried by the seller, the seller is providing owner financing.

__________________

"Success is often achieved by those who don’t know that failure is inevitable." Buy to Let Mortgage Deals


Either way it is awesome

I love seller financing. I love being the bank. I have sold about 15 properties in the last couple years with seller financing. Now I understand why banks have so much money to lend. I receive hundreds every day on just interest alone, let alone the principle I receive from the sell.

When I buy a property with seller financing, that is the best way to buy. then you don't have to get an appraisal, you don't have to get a loan, you can close under $1k. Way worth it. I have done deals where I walk away with money, those are the best.

Well, all in all, just do it!!!

__________________

I always say Keep Moving Forward! Never Give Up On Your Dreams!

As Matt Larsen says "Feed the Need" - Edge 2013

Follow my daily investing journal and read about the deals I've done and am working on at:

http://www.deangraziosi.com/real-estate-forums/investing-journals/117493...


wholesaling with a seller who is offering financing

A neighbor is selling her house.
If she can't sell it, she'll rent it for a few yrs as she has NO MORTGAGE.
She may agree to seller financing.

Will this work:
1. I put house under contract (P.A.) at her high asking price with her 3 year owner financing.
2. I find buyer who will pay higher price b/c can't get other financing.

3. I collect "down payment" of $5,000.00 from buyer and assign contract.


How to Negotiate Owner Financing

Asking a seller to give you owner financing to buy a home can be a tricky proposition. That's partly because if you ask the listing agent if the owner will carry some or all of the financing, the agent probably doesn't know. Why? The agent never asked.

If you ask the seller directly, the seller is likely to say no. Sellers often reject the suggestion of owner financing because nobody has explained the benefits or proposed owner financing as a way to sell the home. Most sellers don't sell a home every day. Their knowledge is limited to conventional practices where the buyer goes to the bank to get a mortgage.

However, for a seller whose home isn't selling or when traditional lender guidelines are tightened, owner financing suddenly becomes very popular. Owner financing is definitely a viable option in buyer's markets.

What is Owner Financing?

When part or all of the purchase price, less the buyer's down payment, is carried by the seller, the seller is providing owner financing. It doesn't matter if the property has an existing loan, except to the extent that the existing lender might accelerate the loan upon sale due to an alienation clause. Instead of going to the bank, the buyer gives a financing instrument to the seller as evidence of the loan and makes payments to the seller.

If the property is free and clear, meaning the seller has clear title without any loans, the seller might agree to carry all the financing. In that instance, the buyer and seller agree upon an interest rate, monthly payment amount and term of the loan, and the buyer pays the seller for the seller's equity on an installment basis.

The security instrument is generally recorded in the public records, which protects both parties.

Types of Owner Financing

Most purchase-money transactions are negotiable. Sellers and buyers are free to negotiate the terms of the owner financing, subject to usury laws and other state-specific regulations.

While there is no standard down payment required, many sellers want a sufficient down payment to protect their equity. Down payments can vary from little to 30% or more. Sellers feel their equity is safeguarded by the buyer's down payment because buyers are less likely to go into foreclosure if they've invested a lot of money upfront.

Some variations of owner financing include:

Land Contracts.

Land contracts do not pass legal title to the buyer, but give the buyer equitable title. The buyer makes payments to the seller for a certain period. Upon final payment or a refinance, the buyer receives the deed.

Promissory Notes and Mortgages.

Sellers can carry the mortgage for the entire balance of the purchase price (less the down payment), which may include an underlying loan. This type of financing is called an "all-inclusive mortgage" or "all-inclusive trust deed" (AITD). The seller receives an override of interest on the underlying loan.

A seller may also carry a junior mortgage, in which case, the buyer would take title subject to the existing loan or obtain a new first mortgage. The buyer receives a deed and gives the seller a second mortgage for the balance of the purchase price, less the down payment and first mortgage amount.

Lease Purchase Agreements.

Selling on a lease purchase agreement means the seller is giving the buyer equitable title and leasing the property to the buyer. Upon fulfillment of the lease purchase agreement, the buyer receives title and typically obtains a loan to pay the seller, after receiving credit for all or part of the rental payments toward the purchase price.

Owner Financing Benefits to Home Buyers

Little or No Qualifying.

Even if the seller demands a credit report on the buyer, the seller's interpretation of buyer qualifications are typically less stringent and more flexible than those imposed by conventional lenders.

Tailored Financing.

Unlike conventional loans, sellers and buyers can choose from a variety of payment options such as interest only, fixed-rate amortization, less-than-interest or a balloon payment. Payments can mix and match. Interest rates can adjust periodically or remain at one rate for the term of the loan.

Down Payment Flexibility.

Down payments are negotiable. If a seller wants a larger down payment than the buyer possesses, sometimes sellers will let a buyer make periodic lump-sum payments toward a down payment.

Lower Closing Costs.

Without an institutional lender, there are no loan or discount points to pay. No origination fees, processing fees, administration fees or any of the other assorted miscellaneous fees that lenders routinely charge, which automatically saves money on buyer closing costs.

Faster Possession.

Because buyers and sellers aren't waiting on a lender to process the financing, buyers can close faster and get buyer possession earlier over a conventional loan transaction. E. Weintraub


What is a land contract?

A 'land contract' (sometimes known as a “contract for deed”) is a contract between a seller and buyer of real property in which the seller provides financing to buyer to purchase the property for an agreed-upon purchase price and the buyer repays the loan in installments. Under a land contract, the seller retains the legal title to the property, while permitting the buyer to take possession of it for most purposes other than legal ownership. The sale price is typically paid in periodic installments, often with a balloon payment at the end to make the time length of payments shorter than a corresponding fully amortized loan without a final balloon payment. When the full purchase price has been paid including any interest, the seller is obligated to convey legal title to the property to the buyer. An initial down payment from the buyer to the seller is usually also required by a land contract. The legal status of land contracts varies from region to region.