06 Jul The facts about Owner Financing
We love structuring owner financing deals whenever possible because of the massive profit potential. When you’re making principal only payments with a free and clear house, the numbers climb quickly — and, as a result, we often get a lot of questions about how these deals work and how we acquire them.
So, in this post, we’re going to cover some of our most frequently asked questions and provide you with a simple formula that will all but guarantee your next owner financing deal comes in over six figures.
If you’re looking for an in-depth explanation of how these deals work, that’s another article entirely. You can check out previous articles on this column or our YouTube channel where we go through literally hundreds of deals, including all the nuances that arise with them.
1. How do you convince a seller to enter into an owner financing deal?
First of all, there’s no “convincing” that needs to be done here. We don’t convince anyone to do anything — regardless of what type of deal we’re structuring. There are many reasons why a seller would be interested in an owner financing deal (as opposed to a traditional sale), and chief among them is the profit potential.
With owner financing, we can maximize the sale price of someone’s home. For example, if you have a house that is currently on the market for $200,000, we could increase that price to $210,000 or more if you’re willing to go four to seven years out. If you don’t need the money right away, it’s a no-brainer.
The other benefit is that the seller gets consistent payments instead of one lump sum. As another example, our office building was purchased on owner financing. The seller preferred payments over getting cashed out immediately because it helped him with his estate planning and taxes. Plus, we helped him maximize the price on the property.
Those are just a few reasons why a seller would want to enter into an owner-financing deal, and should hopefully show you why there’s no “convincing” required on our part. ALL our scripts for this and other types of sellers are in the QLS Home Study Program as well as our Seller Calls online training in our Academy.
2. How do you find owner financing deals?
Some people seem to think that these deals are more rare than finding a needle in a haystack, but that’s simply not true. Finding owner financing deals isn’t nearly as difficult as you might think.
When we do owner financing deals, we’re working with sellers who are free and clear, with no mortgage. And in this day and age, you can find a list of almost anyone — so we use a service like Propstream (https://www.smartrealestatecoach.com/propstream) or Freedomsoft to generate lists of owners who are free and clear on their mortgage. Then we reach out to them to see if they’d be interested in selling their home on owner financing.
It’s that simple.
3. Do you have to structure owner financing when a property is free and clear?
Although owner financing deals tend to have higher profit potential than other terms deals, you do not have to structure an owner financing deal with a free and clear property. You can utilize any of our three terms deals — sandwich lease purchase, owner financing, or assign out—depending on your unique situation.
As an example, a student of ours found a free and clear property and chose to structure a sandwich lease purchase instead of an owner financing deal to avoid a big hit on taxes. This property was in Pennsylvania, where he would’ve been hit twice with a 2% transfer tax. He didn’t want to use any of his own money on this deal, so he structured a sandwich lease purchase with the same principal only payments.
Of course, he lost some of the benefits of being an owner — depreciation, control, etc. — but he got the same numbers out of this deal as he would have with owner financing.
And while you could also structure an A/O (assign out) deal as well, we recommend avoiding it if possible. With an A/O deal, you’re losing all of the profit from Paydays #2 and #3. But A/O deals typically only occur when the owner wants to be involved and wants to capture the monthly spread and principal for themselves and/or when there’s just no profit for you to stay in it — which is something we don’t often encounter, as most owners don’t want to be involved.
4. How can you make 6 figures on an owner financing deal?
There is one specific formula that you can follow to practically ensure you make six figures on an owner financing deal. I say “practically” because there are always nuances with these deals that you need to be prepared for. That is the type of stuff we teach in our courses and that we help our Associates with — not something we can cover in one article.
But the formula is quite simple. If you…
- Purchase a free-and-clear home on owner financing for $200,000 or more
- Structure at least a 48-month term
- Structure $925 or more monthly principal payments
You will have a six-figure deal!