The majority of my real estate investment portfolio in San Antonio is in owner financed properties. Rather than rent the properties out, I do an owner financed note to a qualified buyer.
Many real estate investors are not familiar with how an owner financed deal works, so I thought I would lay it out here for you:
First, I find an under market value investment property in San Antonio in a revitalizing and growing area near downtown. A good example is this dual property in an area that is seeing major reinvestment by the city:
Address: 106 and 110 Dewitt, San Antonio Texas, 78210
Description: Location Location, just south of downtown, short distance to the river walk and the new San Pedro creek river walk extension project (multi-billion dollar inner city revitalization): properties are going to double in value in the next 5 years. Both homes need to be converted into 3 beds 1 bath: estimated repairs for both projects: 80K-40K each, purchase price for both investments: 80K, Max After Repair Value: 119K each or 230K for both, Package deal.
Price: $80,000 cash
After I do a $3k-10k clean up and repair of the property, I find a good, qualified buyer with steady work, income and at least $5000 down payment. I execute a promissary note with the buyer of the San Antonio property. I typically charge 9% or 10% interest, a 30 year repayment schedule (fully amoratizing), no prepayment penalty, and consequences for default.
The buyer then sends me his monthly mortgage payments either by check or electronic deposit (I have a special Chase account set up for this purpose). I then earn a very good ROI in the range of 10-15% per year, and the property is maintained by the end buyer.
I tend to hold my notes for the long term, and do not usually sell them.
Seller financed deals sometimes are for the short term while the buyer gets their credit cleaned up and refinances. In San Antonio, few of my blue collar end buyers end up refinancing. I get long term cash flow with no repair headaches. I also can save thousands in rehab costs because I generally only do a light clean up of the property. The same property if rented would need far more in repairs.
Why don’t more investors consider owner financing their properties? I think many investors simply are not familiar with the process. Many new investors think investment properties must always be rented. Not so.
Another reason I think is that real estate investors may want to pull cash out of their investment properties to do more deals later. You can’t do that with an owner financed property. But you can sell the note on the property if you choose to do so and get cash for more deals.
Last, I think that people don’t realize that you can buy properties with a mortgage and then do an owner financed deal to the end buyer. This is known as a wrap around mortgage, and can be a really great way to make good cash flow, conserve cash for more deals, and eliminate investor worry about repairing properties.