What Is Owner Financing?

I’ve purchased a house every 4-5 days in two decades. You could imagine the transactions I’ve had. Some worked out, some didn’t. It wasn’t easy, but now I’ve gained a lot of experience. And in this video, I’ll talk about what is owner financing and everything about it that you need to know.

What is owner financing? hi, my name is mitch  stephen and i purchased a house in or about my   hometown of san antonio, texas just about every  4 to 5 days. and i’ve done it for over 2 decades.   help you out. it’s about 100 houses a year   those are just 2,000 houses that worked out.   that did not work out. so, somewhere

In   successes, i gained a lot of experience.   today we’re going to cover what interest rate  can you charge, how long will you go in the term,   how much down payment do you need. i’m even going  to talk about why i like owner financing better   than being a landlord. there’s a lot of reasons.  so, stick around,

We’re going to get to it all.   so, again, i’m going to be talking about owner  financing your sale to your buyer. and so, what’s   important to me and what’s important to my buyer?  what’s important to me is that i get a fair rate   of return and that i have it set up in a strategy  that i particularly like and want to do for

A long   time. what’s important to my buyer is that in the  overall picture, his payment is about the same as   his rent payment would have been if he stayed a  renter. so, my goal when i owner finance houses   to my buyer is to make sure that their principal  interest, taxes, insurance and servicing fee   payment

Combined is equal to the rents in the  neighborhood give or take a few dollars. now,   term. and i think a 30-year term is the best or   the optimal for the buyer. because a 30-year term  for me means i have an income coming in for a long   time. it’s also important to me because in the  first 5 years of a 35-year amortization

Schedule,   the principal has been reduced almost by nothing.  maybe 3 or 5 thousand dollars. so, if i have   a loan balance of a $120,000 and my buyer makes  5 years worth of payments and then wants to   refinance or somehow pay me off, the balance is  still like only $5,000 less than when they started   5 years

Ago. so, that’s why it’s important to  me. why it’s important to my buyer is i’ve given   about the maximum amount of years that anyone’s  going to give on a mortgage. so, their payment is   as small as possible. and again, what makes this  work for my buyer is that the pitis payment, the   principal interest taxes insurance

And servicing  fee payment is just about equal to plus or minus   a few dollars to what he was paying rent before  he met me. so, this makes interest rate and value   your note car lot. people aren’t interested   in the price of the car. they don’t care about the  interest rate for the loan for the car. they want  

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To know, “can i afford the payment?” and that’s  what it’s all about. so, what about interest rate?   well, i pick an interest rate for me that i can  sell on the open market if i need to sell my   notes. you know, it’s very difficult to sell a  zero-percent note to someone who wants to buy a   note for an investment. it can be

Done but they’re  going to have to discount you tremendously.   so, i found that 9.9, 10 percent, 10.25 percent  really works. and in the certain price ranges   low price range which is 350,000 or less,   i find that 10%, i can generally get close to what  the rent was but i can also get a value very close   to what the

Market value is if not a little above  the market value. fyi, people are willing to pay   bad credit and the payments are going to be   equal to or right around what they were paying  for rent. so, the interest rate i like is 10%, but   if you get up into $450,000 houses, you may have  to adjust your rate down because 10$ would

Be just   too much interest racking up on too much money  borrowed. okay. now, what’s left? you got term,   you have interest rate, we’ve got down payment.  let’s talk about down payment. very, very, very   important. i take 10% down as a minimum. so, if i  have a 100,000-dollar house, i want 10,000 down.   if i have a

150,000-dollar house, i want 15,000  down. this is my break point. because let’s think   about it for a minute. i got a complete stranger  moving into an asset that’s worth 150, 175, 190,   thousand. if i pick the wrong person, they can do  a lot of damage inside my house. so, i need this   person to be financially committed and

We do that  through down payment. i find that when people give   at least 10% in the price ranges that i’m dealing  in, this is a substantial amount of money for   them. and it’s not a joke. and it’s not something  they’re going to walk away from easily or that   they intend to just purchase something so they can  tear it

Down and then leave. what we’re trying to   accomplish is we want people to invest emotionally  because that’s the house they want. financially,   because here’s my 10% or more down payment. and  we want them to stay for a long period of time   i.e, put on a porch, add a pool, put on a room,   remodel the bathroom. that very

Seldom happens in  rent houses. but in owner finance houses, you can   expect people to stay and fix up the house instead  of do what tenants do which is leave after they’ve   torn your house up. so, it’s very important. and  for the record, with the owner financing programs   that i have in place, and with the advertising 

That i have in place, the strategies that i use,   i’m averaging 9 days on the market and 12 down.  that’s phenomenal. owner finance properties are in   huge demand. and if you learn how to do it, you’ll  have a very substantial tool in your tool belt.   so, make sure we get these strategies down and  that you know what you’re

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Doing when you go into   it’s especially good for landlords who have   black cloud houses. everybody know what a black  cloud house is?it’s that house that you bought   be going smooth. but for whatever reason,   this house just has problem after problem after  problem. and you just can’t seem to find the right  

Person for this house. and we’ve all had a black  cloud house. and when i have black cloud houses,   thing i did was “let’s change the blood on   this. let’s change the whole way this house is  situated. let’s move it from being a rental to   being an owner finance property.” where i’m going  to allow someone to make payments on

Their house.   and when the air conditioner breaks it’s not my  air conditioner. it’s their air conditioner. when   the hot water heater malfunctions, it’s not my hot  water heater, it’s their hot water heater. and so,   finance scenario is to collect the payments   or to foreclose if i don’t. and that’s about the  long

And short of it. here’s why seller financing   is so important to me. because when i was starting  out, i was broke like everybody else. and i used   to make notes and then i would sell the note and  i’d get a big hit of 20, 30 thousand dollars at   one time. but then it would… you know how money  goes –it evaporates. sometimes a

Lot faster than   you want. and then i had to sell another note,  i had to sell another note. i kind of morphed   the idea of being a long-term hold guy like having  income coming in forever like a landlord does. but   i also combined it with having some money upfront.  landlords don’t get money upfront. they get first  

Month’s rent which is something they’re due in the  first place. and then they get a deposit equal to   the first month spent generally. and that’s it.  but as a seller financier, an owner financier,   i can collect 10,000 up front, 15,000; 20,000  upfront. that’s the money that i use to live on   and pay my bills, make my house

Payment, make my  car payment. and then i still have a positive cash   flow between what they owe me every month and what  i owe my private lender that loaned me the money   to buy this house. and that money is a cash flow  that’s very dependable unlike rental income. you   see, rental income, i could get the money in my 

Hand. but if the air conditioner breaks next week,   money. when i collect the mortgage and i have   the money in my hand, that’s my money. because if  the air conditioner breaks, i don’t have to give   it to anyone because it’s not my house anymore.  i sold it on 30 years worth of payments. so,   what i like about it is i

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Get some money today  when i sell a house, a down payment of 10% or   more. and just because i’m asking for 10% doesn’t  mean that’s all i get. i’ve gotten 20 and 25 and   30 percent down on my houses just because people  have money that they don’t want to see disappear.   so, they want to put it into that house as a big 

Down payment. but as a general rule, a minimum of   10 percent down, that gives me my money to eat on  pay my bills, go on vacation and then this other   cash flow that’s coming in just seems to rack up.  you know, i look up one month, i’m making 2,000 a   month positive cash flow. i don’t have to spend  any of my positive cash

Flow because i have the   down payments to live off of. and so, then i look  up next quarter and i got 5,000 a month coming in.   and i’m still paying my bills and i still got  money in the bank from my down payments. and   then i look up 3 quarters from then. and i have  10,000 a month coming in. and then i had 15,000  

A month coming in. and then i had 30 and 40 and 50  thousand a month coming in. and it goes on. and i   never had to… and i still had money building up  in my bank account to pay my bills and to have fun   with my family and everything. because i wasn’t  even spending all the money that i was making   owner finance strategy

Is a tremendous strategy.   and later, at some point in this series, you’re  going to learn why i think this strategy may even   be recession proof. last but not least, you always  got to watch out for the pitfalls of the potholes,   strategy. you know when you’re seller financing   houses, you got to make sure you conform

With  some state and some federal regulations. check   out dodd-frank understand it, make sure you have  an rmlo or a residential mortgage loan originator   so they will help you conform to your state and  federal laws so that you don’t get in trouble.   this is a tremendously lucrative business. it  would be a shame to

Not do it correctly or to just   do it make a few little mistakes that could really  cause you some big problems. so, again, make sure   you know the rules and regs in your state and  that you have an rmlo that will help you stay   in compliance. that’s the most important thing  –stay in compliance. in honor of you staying

Till   the end of this segment, i would like to offer you  failing forward to financial freedom. all you have  to do is click on the link below and i will send   you a copy of the book. all i ask is that you pay  postage and handling. i think it’s about 7 bucks   autographed if you use this link. thank you.

Transcribed from video
What Is Owner Financing? By Mitch Stephen