Owner Financing Arrangements for Landlords
Ed: Hey everybody, it’s Ed at Flip Sharkz here and today I just wanted to talk about the types of owner financing arrangements. Many people are not quite sure the different types of arrangements and if you are interested in selling your house or even purchasing a house, seller financing is a great tool to do that for buyers and sellers. It’s actually a pretty powerful way without having to go to the bank to get that transaction taken care of and it just can be a lot smoother and a lot easier for both parties, for price, payment, interest rate and so on in terms. So there’s different types of arrangements and I wanted to run those past you guys to make sure everything that you negotiate is in a win-win type of situation.
So a couple of things we want to talk about when it comes to owner financing. Purchase price, obviously. Of course a purchase prices of the houses up for negotiation. And sometimes the seller might agree to a lower purchase price. It might be in your interest to negotiate that price today at a very attractive price. And eventually when you own a house in a few years, you’ll have the house that’s purchased at that price, it’s agreed upon in the very beginning.
Lump Sum Payment
Another thing that often comes up is a lump sum payment. With an owner financing type of deal, the seller may want a down payment on the front end of that purchasing arrangement, maybe because they need some money upfront or they just want to know that you have some skin in the game and that you’re serious. You may want to pay a down payment to reduce the size of the overall financing agreement, or you may not want to put so much of a down payment because just simply you may not have the money to do that. And this is the nice thing about seller financing is it’s all negotiable. And even sometimes the seller wants a big lump sum on the end and we call that a balloon payment.
So it’s entirely up to both parties to decide what is the best fit. The next thing that you want to consider is the time. So time is one of the biggest factors of any financing agreement. It’s how long that agreement will be enforced. So basically in other words, how long will it take you to pay off the financing? Higher payments usually mean paying the financing off faster while ultimately paying less interest.
So it’s kind of a balancing act, got one for the other. So however, lower payments are spread out over a longer period of time, they might raise the overall price of the house, but also it can be more manageable for you. And we try and keep this in a nice, fair balance because everybody wants cashflow. The seller wants enough cashflow to meet their needs. The buyer needs to make sure that their debt coverage isn’t so high that they can’t cashflow on whatever their exit strategy is as well.
The next thing to figure out and think about what you want is the interest rate. So it’s one of the other big factors of any financing agreement is how much interest you’ll pay on that mortgage and exactly how that interest is calculated. Just for an example, a simple interest rate of 10% added to your financing is very different than an annual compounding interest rate of say the same 10%. So make sure you look at the interest rate terms very carefully and I would always suggest like what we do is we have a residential mortgage loan officer that we deal with directly on all of our deals and we calculate that out ahead of time, make sure it’s accurate and everybody’s happy. The purpose is to have a win-win situation for the sellers as well as the buyers.
So just to wrap it up, there’s a thousand other considerations about different types of owner financing agreements, but you find out that these are the main topics that you want to, negotiating points you want to talk about in every situation. And also, you can skip all negotiations and complexity and just sell directly to Flip Sharkz. We buy properties all the time. We buy and sell and owner finance on both sides. And we’d love to work with you and discuss what you need for your portfolio so you can give us a call at 541-780-2424 or jump on the website at www.flipsharkz.com. Thanks and have a good day.