I’m a 15 year expert in San Antonio investment properties, and for the first eight years, I mostly did rental investment properties. However, during the market crash of 2008, I converted most of my under market value properties to owner finance investment properties.
That was a great decision! Today I am a financially retired owner finance investment property owner ((San Antonio – one of the best cities to invest in real estate). I have found that owning owner finance investment properties is generally better than rental properties.
Teddy, our site’s mascot, agrees with me :):
If you are not very familiar with owner financing properties, sorry! I’ll explain:
- Some people want to buy a home rather than rent, but they lack the credit to get a traditional loan. One option the under market value property investor has is to ‘be the bank.’ That is, you the under market value property owner can write a mortgage yourself to your home’s occupant.
- The same terms apply as when you get a mortgage from a bank. Payments are made over time with an interest charge, taxes and insurance must be escrowed.
- In my under market value properties with owner financing, I charge 10% interest, 30 year term. My buyers may refinance when they like.
Here are some of the advantages of owner financing for the below market value property investor (pay attention, out of state investment property searchers!):
- Owner financed investment property can sell very quickly to your buyer. There is no bank involved, so after you do your due diligence on the buyer and get their down payment, you can go to closing right away. Once I have the buyers’ proof of income, I usually close on my owner finance investment properties in two weeks.
- Owner financed investment property has a very good rate of return because you have no maintenance costs.
- Owner finance investment property has a lot of peace of mind because I do not worry about what the next repair on the house will cost me.
- In Texas, owner finance investment property is easy to foreclose on. If the buyer defaults, I repossess the house in 60 days and resell it.
- Owner finance investment property is very attractive as an out of state investment property, because you are not a landlord. You just collect your monthly payment from your buyer electronically each month. It is great passive cash flow for the out of state investor.
The above advantages of owner finance investment property have made me quite wealthy at the young age of 38. I strongly advise all under market value property investors to consider owner financing instead of renting.
Now, if you are an out of state property investor, you might wonder, what would this mean for me? Well, let’s take a look at this San Antonio under market value property:
- Address: 2229 W Hermosa Dr. San Antonio, TX 78201
- Year Built: 1948
- Description: Below market value property sale, 2 beds 1 bath, 769 sqft, lot size: .14 acres yearly taxes: estimated repairs: 35K (convert to 3 BR).
- Max After Repair Value: $129,000.00.
- Cash Price: $69,900.
Your cash outlay for this under market value investment property would be $105,000. The rate of return for an owner finance investment property here would be ~11%. Your monthly income would be $900 per month after you pay taxes and insurance.
You have no other expenses.
Meanwhile, if you rent this property, you will also net approximately $900 per month, but you will also have a property management fee of approximately $95 per month, plus repair expenses of $500 to $1000 per year. Your ROI will drop to approximately 10%.
Of course, some under market value property investors buy Texas investment properties to enjoy depreciation and writing off expenses for tax purposes, and there is nothing wrong with that! Personally, I prefer the pure passive cash flow from owner financing investment properties.