How I Earn Totally Passive Income With Under Market Value, Owner Financed Properties

I frequently see lots of articles about how ‘passive income isn’t as passive as you think’ related to real estate investing. Here is a good example.

The author points out how often investing in under market value investment properties is not as passive as one might think. She does make some great points about the problems with managing under market value rental properties:

  • You have to deal with random phone calls about the roof leaking or the toilet being stopped up in your below market value rental property.
  • You need to check up on your rental properties for regular maintenance issues that if left untended, can cause you major repair issues (such as a leaking gutter).
  • Looking for new tenants every year
  • Even if you hire a property manager, you still will have to deal with extra expenses, problem renters, maintenance problems, and yes, dealing with problems with property managers.

As a big investor in under market value properties in Texas, I am very familiar with the problems of renting out properties. At one time, I owned and managed more than 200 rental properties. There are no problems with under market value rental properties that I haven’t seen!


That’s why I converted all of my below market value rentals to owner finance properties about five years ago. On my  San Antonio Texas investment properties now, I am ‘the bank’ to the occupants of the houses.

On each of those 200 San Antonio Texas investment properties,  I executed a promissory note for the qualified occupant at 10% interest, 30 year term, no pre-payment penalty if they want to refinance. My buyers send me electronic mortgage payments each month.

This type of under market value property investing has several advantages over rental properties, especially as an out of state investment property:

  • Truly passive income. I never have to worry about a single repair on any property that I own. My buyers maintain the properties as they are buying them from me on terms. Most of my San Antonio buyers are blue collar workers, so they have the skills to keep up the houses.
  • No vacancy concerns. Most under market value property investors have to worry about vacancies every year. Not me. As long as my buyers pay on time, I never have to worry about getting another occupant in the house. If I have to foreclose, the house is vacated in 60 days and I resell it. I have resold some houses three time.
  • No phone calls. My occupants ‘own’ the under market value houses, so I just hold the note.
  • I can sell the note on the below market value property if I need cash. Many people do not know this about owner financing. If you do not want to carry a long term debt instrument, you always can resell it on the open market.

Short summary: Owner financing under market value properties is a fantastic passive income instrument. It is especially suitable for out of state investment property seekers. Imagine being able to count on monthly passive income without being a landlord! That’s exactly what you have with owner financing.






5 Reasons I Like Owner Finance Investment Properties Better Than Rental Investment Properties

I’m a 21 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.

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!):

  1. 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.
  2. Owner financed investment property has a very good rate of return because you have no maintenance costs.
  3. 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.
  4. 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.
  5. 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:

edison front

  • 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.