Why Real Estate Investors Should Consider Owner Financing

Author: James Orr

Owner financing has always been something that savvy investors look for in a deal. Amidst current market conditions, these creatively financed deals have become more essential to investors than ever. In the wake of the subprime loan crisis, Freddie Mac has announced that beginning in August of 2008, it will reduce the number of loans that an investor can hold from ten to four. With such strictures, investors must have as many tools available to them as possible to creatively structure deals.
The current market conditions have left many houses languishing on the market unsold with diminishing possibilities for a full price sale. But owner financed deals can help both the investor and the seller to get what they need.
In many instances, investors can offer homeowners full price if they are willing to give them good terms. For example, a house that would have had negative cash flow with a traditionally financed 100% loan (which are nearly impossible to obtain now), can cash flow if the owner carries back. Instead of asking for a particular interest rate, the investor would offer to make the monthly payment that would make the property profitable. The seller would receive the full purchase price, a set payback period of 15, 20 or 30 years would be agreed upon, and the number and amount of the payments would determine the interest rate.
Or, the investor can also offer the seller full price, but ask for a specific interest rate which is lower than the banks are offering, in exchange for getting the house sold right away. Additionally, the investor can also negotiate a period of lower or even no payments while he is fixing up the property. All of these things are negotiable, but investors need to tap into their creativity when structuring these deals to continue building their portfolio in the current market.
To sum up, with both the number of loans available to each investor drastically reduced and the near impossibility of obtaining 100% financing, investors with little extra capital can continue investing by asking sellers to carry back. Don’t stop investing just because fewer loans are available!