How Does Owner Financing Work?

The best way to buy property. You don’t need banks after all.

Hey there paul david thompson coming at you on how to do owner financing how does it work what does it mean and why do i like it so much i’m a full-time real estate investor and i’ve bought a ton of properties using owner financing it is my single favorite way to buy properties and i will show you why and how it works first off if you buy a property using owner

Financing you don’t need to find a third party bank you don’t need to get qualified if you don’t have good credit maybe you don’t have a really big down payment you can get some of the money or a lot of the money effectively from the owners equity and it typically the seller has the property free and clear i will cover in another video about how to do this but they

Own a wraparound but today will keep it simpler and assume that the property has hey is free and clear the owner owns the property free and clear they have no debt on the property and it’s a tired landlord it’s a and they want to sell the property but they enjoy the passive income of having the property but they don’t enjoy the active part of actually managing a

Property well why don’t you just buy it from them and you start making them payments as though that the bank because that’s what they’re going to act like so let’s take a property on let’s call it 1 2 3 main street main street so just a simple little property rental property i’m not an artist to deal with it and they want to sell this rental property and you make

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Them an offer to buy it for say a hundred thousand dollars with a $10,000 down payment so with 10 percent down and you’re gonna make them payments of for the remaining $90,000 for at for five hundred dollars a month until paid so what is that exactly work out to be that is effectively a 0% interest financing you just pay them five hundred dollars in you they don’t

Charge your interest that is one option but if they’re a little more shrewd and they understand that that scent percent financing and they don’t feel comfortable doing that then they might expect you to take it longer to pay it hard to actually charge some interest so you say well what kind of interest rate are you getting in the with the bank if you were just

To get the whole hundred thousand dollars what would you do with it a lot of people just say my put in the bank and i hope i get one two percent out of it somehow well what’d you say well what if i give you twice that i paid you three or four percent so let’s say we do that at 3.5% do you think a seller might like that they get two or three times what they might

Be able to get at the bank but you could get qualified for a bank loan at three and a half percent in today’s terms is unlikely so it’s a win-win on both sides you’re kind of playing the odds of our playing the differences between what the prevailing market would give you versus what they can get from the market they’re not a bank they don’t know how to go and

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Basically how ate the money so what you do is you start making them payments and this might i have another math here but this might take you ten years to do this ballpark i’m not having check numbers but you so you’re paying the property off once you make all these payments for those ten years let’s say then the property’s paid for now you own the property free and

Clear and they no longer have any sort of attachment to that property more so how do you protect their interest when they’re doing this the same way a banquet and this is how owner financing works is you the seller or the seller sells it to you a buyer and you give them a promissory note the legal document that basically says i promise to be using these terms that

We describe down here and then you also give them a mortgage basically attaching this property to this promissory note using the property they just sold to you as collateral so what scenario could a seller invest their ninety two hundred thousand dollars have the property secured by a property that they already have managed and have it and get three and a half

Percent interest without having to do any kind of work that’s why owner financing is such a compelling argument to sellers if you know how to explain it to them you don’t typically start off the conversation hey mister seller i want to buy your house how how about we do want to finance it the default answer in most cases is no no you need to figure out what it is

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That they need why are they selling the house what problems are they having and would some continuous payments over time actually help solve their problem and if it did or if it would then that it would be a good offer to them and they might actually accept it once you kind of understand their problem so it’s very important to know that these are the two documents

That you would use for owner financing those two documents are the same types of documents that you would use if you were going to a bank and you were borrowing money from a bank you would give them a promissory note and a mortgage to promise that you’re gonna pay and secure the titles of this property to that promissory note so in the event that you didn’t pay

The bank could foreclose on you and take the puppy over as collateral to secure their interest in the property that’s how that’s the basics of owner financing i’m paul david thompson i have a podcast called ready investor 1 if you want to listen in while you’re working out or driving to work or watch these videos i have a few more up here about the next step on

How to use owner financing and take it to the next level if you liked the video give us a comment down below how are you buying properties are you doing owner financing what about it do you not understand give us a like give us a subscribe and the notification button is down there so you can be notified when new videos are coming out

Transcribed from video
How Does Owner Financing Work? By Paul David Thompson