Last September I mentioned that we bought our first rental, which ended being here in the Tulsa area, and not in OKC, where we consider home. It was unique because, not only is it an amazing already-remodeled-with-long-term-tenants-and-property-manager-in-place-with-owner-financing turn-key rental, but also because I got that property with my OKC marketing.
Two weeks after closing on that house, I got a phone call from an elderly lady about a letter I sent her. She has a house in OKC she wants to sell, but – and here’s the deja-vu! – she was more interested in selling a house she owned in Tulsa first and would sell it with owner financing.
We negotiated back and forth, and finally struck a deal. It took two weeks for her to get the contract back to me, but we finally closed last Friday! WHOOP!
To add to the bizarre deja-vuness of this deal, we also plan to keep this property as a rental, since we acquired it with owner financing – too good to pass up.
Here are the details of the deal, for those who are interested in seeing what kind of owner financed deals are possible right now:
–A 2/1/1 with 1365 sqft, and huge extra den with fireplace.
-The ARV of the house is $100-110k.
-It was in rough but still decent shape (the disgusting, pet-stained carpet was the worst), but the kitchen has new cabinets and the bathroom was recently updated.
-Quick research told me I could rent it for anywhere from $775-925/month
-I made three different offers: all cash (very low), short-term owner finance (3 years), long-term owner finance (7 years)
-We finally settled on a purchase price of $70,000 with $2k down, principal-only payments of $350 for 3 years and I pay closing costs.
-Did you catch that I got this deal with an interest rate of ZERO PERCENT? The monthly income was more important to her than interest, and when I explained that to maintain my minimum cashflow requirements, I could offer either lower payments and higher interest or higher payment and no interest, she went with the latter.
-That means in 3 years, when the full balance is due, I will only owe around $56,000 on a house worth $100,000.
The reason this deal was worth keeping (instead of wholesaling) is the terms. Since we want rentals as part of our long-term plan, we couldn’t pass this up. We don’t have $50-60k sitting around to invest, and didn’t want to have to qualify for a loan or put a huge down payment down. This was a great way for me to acquire a property that could cashflow, without a lot of money up front, and with plenty of equity from the get go.
The cashflow won’t be amazing at first. Here’s how it breaks down:
$850 Rent (confirmed by property manager as the conservative rental rate expected – possibly more)
-$350 Debt Service (to previous owner)
-$120 Property Taxes
-$90 Property Insurance
-$127 Maintenance/Vacancies (15%)
-$62 Private Investor (who is funding the rehab; 1 year note)
This isn’t smokin’ hot cashflow, but I know that I will not lose money in the next three years while I’m building that equity and payment history.
The payment history is important because in 3 years, I’ll refinance the loan balance. This is fantastic for me, since I won’t need to get a new loan; I can refinance since I already have a loan on the property with the previous owner. Since I’ll have already established payment history, have proof of consistent cashflow, and have 50% equity in the house, I won’t have to put down a large amount or jump through (as many) financial hoops,
Other people have pointed out that in 3 years this would also make a great flip, which we may do.
I’m quickly falling in love with owner financing. It’s so much simpler and cheaper than getting a loan, and can be easily structured to make both you and the seller happy. Give me a few more deals, and I’ll probably be able to tell you about any disadvantages of owner financing as well. 😉