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
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
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
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