Posted in Blog  
  on Jun 05, 2013

Owner Financing Pros and Cons

Owner Financing Pros and Cons

The Pros and Cons of Owner Financing

Owner financing are typically seen in cases where an individual agrees to sell the property in exchange for a note where the buyer commits to abiding by the terms and pledges the property as collateral for the loan. Compared to a conventional loan, both parties normally negotiate directly and come to the agreed terms before closing. This results in a more flexible arrangement and quicker closing process.

Advantages to Owner

Owner financing is a good option for sellers who can afford to wait five years for their equity while looking to earn a monthly positive return of their money. Typically, the 8-12% earned is better than any bank.

The end buy becomes liable for the taxes and insurance on the property while the seller is able to collect monthly income with less costs, risk, and hassle.

Disadvantages to Owner

The main disadvantage to the owner is the inability to collect the equity in its entirety up front. There is still a risk that the buyer will become in default of the loan causing no income to be collected. If the buyer defaulted and left the property in need of repairs, it would become the seller’s liability.

Advantages to Buyer

Purchasing a property by owner financing may be the only way the buyer can achieve home ownership and is ultimately easier to refinance the property they are living in than making payments obtained through new financing.

Disadvantages to Buyer

If you are unable to improve your credit score or refinance the home at the end of the balloon period, than you run the risk of losing the payment as well as any non-refundable down payment invested. The interest rates are also higher than conventional loans for the owner to offset the risks.

Owner financing in the end has increased in popularity. This strategy allows the owner to reach within a large buyer pool that is otherwise considered unloanable in the eyes of banks. While this strategy has risks for both parties, owner financing can lead to a mutually beneficial real estate transaction.


5 Landlord Forms that Every Landlord Should Have

When it comes to being a landlord, one should know that it is not for the unprepared individual. This should be clear that being a landlord does not simply mean that you will be taking the rent and... More

Landlord Obligations: The Responsibilities of a Landlord

Becoming a landlord is a major deal and no one can simply get up and think, “well, yes I think I should be a landlord and rent out my flat.” If you are thinking that you would like to be a landlord,... More

The Best Landlord Forums

Landlords and aspiring landlords, do not become as such, without guidance and advice. There is a lot that goes into being a landlord nowadays; in fact, there is so much to learn that it often confuses... More

The Biggest Landlord Problems and How to Fix Them

Renting out an apartment or a house can become a constant revenue source for landlords, but at the same time, it gives rise to several problems. It is a fact that high standards, a strict lease... More

Landlord Tenant Disputes

If you are currently thinking of becoming a landlord only because it helps you have a constant stream of income, you should think twice. It’s not that you should not consider offering your property... More

List of Landlord and Rental Property Tax Deductions

When it comes to paying taxes, most individuals have no idea that they may be paying so much without needing to do so. The same goes for landlords. Why should you or any other landlord be paying more... More

Landlord Advertising Guide: Marketing Your Properties

When you own a rental business and start it from scratch, you know how important it is for your business to reach the people it matters to most. How else would your business flourish and blossom? It... More

How to Handle Tenants from Hell

For a landlord, it is of immense importance to ensure that they only let a qualified tenant to move in. It is however every landlord’s nightmare when they get tenants from hell who make the tenancy... More

Explanation of Tenant at Sufferance

There are many terms and concepts used in the realms of landlording, and when it comes to learning everything in the property business, most aspiring property owners find them in trouble. Most... More

Handling a Tenant Breaking the Lease Agreement

Not all tenants are alike; some of them are good, others are from hell. That’s why one should know the right way to deal with bad tenants. They can be troublesome in the sense that they can damage... More