Great question! As with any investment of any type, there are risks. In owner financed real estate with fixer upper homes, there are two:
The End Buyer Defaults
In owner finance, you are the bank, so there is a chance as with any mortgage note that the buyer could default. People die, lose jobs, get divorced and get sick, among other problems.
If your buyer is 30 days late, we will contact him or her and learn what is going on. We attempt to get them back on track by having them tap savings or a 401k. If they continue to be late, we will get our real estate attorney involved.
The foreclosure process in TX is simple and costs $500-$1000. The entire process takes up to 60 days. In some cases, the buyer will simply give you the keys back and leave.
Once they are out and the house is clean, we resell it for you $5000 down again.
Foreclosures occur in about 20% of all houses within five years. John Majalca, our principal and distressed property expert, has done dozens of foreclosures over the years. They don’t worry him. Foreclosures have never affected his net worth or cash flow in a significant way in 15 years.
The House Doesn’t Sell for 3 Months
We do our best to sell your distressed home as soon as the rehab is done, but this is real estate. It can take a few weeks or months to sell, just as it does with your personal residence.
To make long term positive cash flow and building of wealth, you need to have patience. We will work hard to get you a GOOD buyer in your home with $5000 down and fully documented income, as well as a stable job history. This takes time.
Median time to wait for a buyer is 60 days. Some sell in a week, others can take 3-4 months.
Keep in mind that in rentals, you worry about non-payment, vacancies and repairs. In owner finance, you have no worries about repairs, you only have to contend with foreclosures from time to time and being patient as the houses is being resold.
My personal houses took 2-3 months to sell. And I was well rewarded with good, steady paying buyers. I have not had to personally do a foreclosure in three years of investing.