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Two Tips on How to Create a Win-Win Owner-Financed Real Estate Deal

Aug 18, 2007
When the stock market began to crash in 2000, investors started to move their cash out of the market and into real estate. The money flowed that direction largely because of the advice of success gurus, such as Rich Dad, Poor Dad's Robert Kiyosaki, and because of some great opportunities to profit.

Those investors did extremely well. But now that interest rates have moved up, the housing market isn't growing nearly as fast. Many are trying to sell.

Unfortunately, the higher interest rates and sky-high real estate prices make it difficult for many people to buy real estate. So owner financing is becoming very popular (and profitable) once again. So if you're thinking about selling a house, you may want to look into the possibility of financing it yourself. This can be a great opportunity for the seller and it offers some tangible benefits to the buyer, such as much lower closing costs.

If you find yourself with the opportunity to finance a house you want to sell, here are a couple of things to keep in mind. These tips will help you minimize your risk and ensure that the decision to finance the house yourself is a profitable one.

The biggest risk with financing a mortgage is that the buyer doesn't pay. This typically results in foreclosure, which is a real hassle. You definitely want to avoid this situation. So it's not wise to go into an owner financing deal unless you get a substantial down payment. And by substantial I mean at least 20%. Never lend anyone more than 80% of the purchase price. If you do, it's just too easy for the buyer to walk away from the mortgage. If you get 20% up front and the whole deal goes south, you'll have some money for your trouble and you can resell the house.

Once you get the down payment, don't ever let the buyer get slack on the payments. Keep the pressure on to make the payment on time and let them know you will use every inch of the law to protect yourself. That may seem harsh, but it's absolutely vital to stick close to your contract.

If you manage the contract and your buyers right, owner financing can be a win-win for both you and the buyer. But failure to do so can result in some nasty problems. So make sure you take the steps necessary to protect yourself.
About the Author
Steve Kroening writes for Success magazine and also publishes Wisdom's Edge. You can get Biblical tips on health, finance, relationships, parenting, and success, delivered to your email inbox every week. Simply visit http://www.wisdomsedge.com and sign up for this free e-zine.
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