Capable Home Buyers typically seeks Owner Finance purchasers to buy the homes we have available for sale. This is our favorite strategy for a number of reasons. From the investor’s perspective including Capable Home Buyers and our lenders, we “sit in the position of the bank”. This means that we pass ownership of the property over to a buyer and collect payments each month to pay off the house.
The most important reason why this is a great strategy for investors is because the responsibility of the house is turned over to the buyer. The buyer is responsible for all costs associated with the house including Taxes, Insurance and the big one that most people don’t factor correctly, Maintenance. Another benefit is the reduced risk of vacancy.
Many people think the buyers for owner finance properties are people who don’t qualify for traditional lending. We do get a lot of applicants who don’t qualify for traditional lending, but this doesn’t mean they don’t pay. It just means they don’t meet the traditional lenders criteria. They still pay their bills and most pay rent on time every month and have surplus income for the things they want in life.
The owner finance buyer however may be lacking in savings or had a recent issue with credit or recently moved or changed jobs etc. There could me a number of reasons why they don’t qualify but this doesn’t mean they are a big risk.
Perhaps think about it another way, you are willing to have these exact people as tenants and have them help you pay your mortgage but selling them the house – well no, that is just not right. Well we think it is right.
We establish our contracts in a way where we are protected and able to protect the investors and the buyers so it is all win/win.
Do we charge more then the banks? Of course we do. We don’t have the volume the banks work on or the government printing press to help us along, but is this a big difference for the buyer? That is a great question. A few percent interest makes a difference in the long term but not on the monthly, it doesn’t make that much of a difference at all. Plus, when you factor in loan costs, and all the other charges the banks add on to getting a loan these days, owner financing is not that bad for the buyer.
We always ask for a considerable deposit. Something around the $10,000 mark or higher if the house is in an area that can justify it. This deposit commits the buyer to the property. The monthly is calculated like any typical loan or mortgage. As an example, comparing us against a traditional lender;
Capable Home Buyers places a house on the market through Owner Finance. Outright buy price $200,000. Deposit $10,000 mortgage $190,000 and Capable Home Buyers pays closing costs.
$190,000 at 6% for 30 years = $1,139.15 plus taxes and insurance escrowed.
The same $190,000 loan through a bank at 4% = $907.09 plus Mortgage Insurance approx. $150 = $1,057.09 plus taxes and insurance escrowed.
The bank also needs to add on closing costs, origination charges, appraisal, credit report, title related charges, recording fees, transfer taxes, and the list goes on. Typically, it costs about $7,500. The lender may give some specials or discounts but these costs do show on the loan docs. And, this $7,500 comes out of the $10,000 deposit, therefore the borrower is actually borrowing $197,500 – Monthly payment $1,092.90
So our 2% higher interest cost equates to an extra $46.25 per month.
I can assure you that we are much easier to deal with then any financial institution.
We use creative advertising to find these buyers and place the adds on Facebook, Craigslist and many of the real estate related websites including Zillow, Realestate.com, etc.
When the renters compare us to a traditional rental and/or getting a loan from a bank, they generally come running. Our last posting got over 40 applicants all with $10,000 or more for a down payment. One couple even offered us $40,000 down payment. And even with that they couldn’t qualify for a traditional bank loan.
We get residence history, work history, income verification, payment history, we do a criminal record checks and an eviction check. Based on what we find, we may do a credit check but their credit score and report really doesn’t mean that much to us. We are concerned if they are going to pay us every month.
If you would like to invest with us and earn great passive income, give us a call at 757 600 9160 or visit www.capablehomebuyer.com