How to get started in Real Estate – Owner Finance

Ben Scott, real estate agent with West + Main in Oklahoma City, goes over the reasons why a buyer and seller would consider an owner fiance agreement. And how its a great way for a new investor to get started in real estate.

Now one question i often get is how do i get into real estate investing without any credit maybe i have a little cash i’m self-employed but i can’t get bank finance well today we’re going to talk about one way to step into real estate investing without considerable credit or borrowing power that’s the owner finance agreement my name is ben scott the grip properties

Agent for western maine here in oklahoma city let’s talk about it now for years we’ve been conditioned to the fact that to buy a home you need traditional bank financing but bank financing isn’t for everyone so today we’re going to talk about one way to step into real estate investing without having to go through a bank that’s going directly to the seller now many

Of the steps are the same as they would be with traditional bank financing you establish terms that be interest rate contract price etc then you establish a promissory note and a mortgage with that owner the collateral of the loan is the house and then you make monthly payments to the owner with interest and just like a bank a portion of that monthly payment

Goes to the principal so why would a seller want to do an agreement like this or why wouldn’t why would a buyer isn’t it kind of risky on both sides without a bank acting as the middleman first let’s go over the pros for the seller now oftentimes a property owner in a situation like this has had a tenant in the house so maybe now the house is vacant or maybe

They have a problem tenant maybe they inherited the house there are literally dozens of reasons why somebody would want to sell a property that they’re not living in either way the first reason a seller might consider an owner finance number one cash flow with no headaches or tax hit the seller will still get their monthly payment every month but they don’t have

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To deal with the tenants and they don’t have to pay capital gains tax as they would if they sold the property in a traditional mode if they were to sell that property outright and cash out they’d be taxed on the cost basis of that home and now the well of monthly payments has suddenly gone dry and you’re hit with this big tax bill this option allows the checks to

Keep coming with minimal taxes reason number two is no commissions if a seller went through a traditional real estate brokerage they’d have to pay up to six percent in real estate commissions through owner finance the seller would have to pay little or no commission unless a realtor is involved somewhere in the process reason number three a seller could consider

Owner finance is large down payment up front with a high interest rate in most seller finance agreements the buyer agrees to pay a pretty hefty down payment up front with a higher than normal interest rate usually at least one above prime but it could be up to 10 percent this is because the buyer doesn’t want to or maybe can’t qualify for bank finance so for

The seller if your house is worth a hundred thousand dollars you’re getting five six maybe up to ten percent return on your money reason number four a seller might consider owner finance is if the buyer defaults the seller takes back the property believe it or not this is a business model kind of similar to the buy here pay here uh auto finance that we see a lot


Of commercials for you establish an owner finance agreement with a high risk buyer you receive a large down payment with a high interest rate almost with the expectation that this person will default so when they stop making their payments you foreclose on them with the mortgage you’ve already established you take back the property clean it up and sell it to

Somebody else so we’ve talked about the pros for the seller in an owner finance agreement but how about the buyer is this a good deal for a buyer uh for owner finance reason number one lower fees we’re all familiar with the closing costs that can add up when you’re buying a house with traditional bank financing that’s loan origination fees appraisal flood surge

Background check these can be several thousand dollars but if you do an owner finance agreement with the seller those closing costs at least here in oklahoma where i’m an agent are minimal so really the only fees you’re paying in closing costs are to the title company and you always want to close at a title company but if you’re let’s say an fha buyer you’re

Already putting 3.5 down when you add all these closing costs you really may not be out that much more cash than if you did an owner finance agreement with a large down payment reason number two a buyer could consider owner finance agreement is no ding on your credit now you will establish a mortgage and a promissory note with the seller that will be filed with

The county but it’s not part of anything reported to any credit bureau so if you were to apply for another credit card or a different loan in the future that owner finance agreement you have with that seller is not part of your credit profile so the buyer would have an equitable interest in this property but free of their buying power to do other things reason

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Number three a buyer could consider owner finance agreement is quick close really after all the title work is done you can close on a seller finance or owner finance agreement in as little as two weeks and reason number four a buyer could consider an owner finance agreement is there’s still opportunity for cash flow there is a situation and i’ve done this myself

Where you can get a tenant into a property in which you have an owner finance agreement and you can still make money on that tenant if you can negotiate the right price in the right terms you can put a tenant in that property and still make money every month as you build equity into the property now full disclosure as a real estate investor i have three owner

Finance agreements in place right now all which are cash flowing every month as i build equity into those properties this option has allowed me to extend my portfolio without having to seek a line of credit to buy more property now with any real estate dealing there is risks involved so of course check with an attorney or a real estate agent in your area and

Always close an owner finance agreement at a title company again my name is ben scott with grip properties agent for western maine here in oklahoma city if you have any comments or questions please leave them below i do look at those and would read those and would like to potentially do a future video on how to find an owner finance agreement today we talked

About the pros and cons of it for the buyer and the seller but how do you find those deals maybe we can talk about that in a future video

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How to get started in Real Estate – Owner Finance By Ben Scott