What Is Owner Financing


What is owner financing hi my name is mitch steven and i purchased a house in or about my hometown of san antonio texas just about every four to five days and i’ve done it for over two decades if you don’t have a calculator there let me help you out it’s about a hundred houses a year and it’s about two thousand houses in my career those are just two thousand houses

That worked out there was a lot of transactions i tried that did not work out so somewhere in the thousands of thousands of attempts and successes i gained a lot of experience so today we’re going to talk about what is owner financing 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 gonna get to it all so again i’m gonna 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 let’s talk about the term i like a 30-year 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 five years of a 35 year amortization schedule

The principal has been reduced almost by nothing maybe three or four thousand dollars so if i have a loan balance of a hundred and twenty thousand dollars and my buyer makes five years worth of payments and then wants to refinance or somehow pay me off the balance is still like only five thousand dollars less than when they started five 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 um value non-consequential it’s kind of like a tote 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 10.25 percent really works and in the certain price ranges that

I deal in which is the medium to the low price range which is 350 000 or less i find that 10 percent 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 a little above market value when they have 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 percent 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 ten percent down as a minimum so if i have a hundred thousand dollar house i want ten thousand down if i have a hundred and fifty thousand dollar house i want fifteen thousand 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 150 175 190 000 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 percent 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 and increase the value of this collateral 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 a 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 nine days on the market and 12 percent 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 because it can

Change your whole world 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 that should be fine and everything should 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 clown houses especially when i was doing rentals first 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-financed 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 all i’m really responsible for in the owner 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 30 000 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 up front landlords don’t get money up front they get first months rent which is something they’re due in the first place and then they get a deposit equal to the first month’s written generally and that’s it but as a seller financier an

Owner financier i can collect ten thousand up front fifteen thousand twenty thousand up front 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 can get the money in my hand but if the air conditioner breaks next week apparently this is the air conditioner man’s 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 five thousand 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 three quarters from then and i have ten thousand a month coming in and then i had fifteen thousand a month coming in and then i had thirty and forty

And fifty 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 from my down payments so check it out the 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 right because there’s always one in every 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’ll 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 a free copy of my book my life in a thousand houses 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 seven bucks and we’ll get it right to you it’ll even be autographed if you use this link thank you

Transcribed from video
What Is Owner Financing By Mitch StephenliveBroadcastDetails{isLiveNowfalsestartTimestamp2022-06-23T160011+0000endTimestamp2022-06-23T161331+0000}