Any upside to owner carry?

[kite_rider]

Lots of good advice already given. Some of the upside that I didn't see yet was that you don't get stuck paying realtor commissions and crazy closing costs that only seem to benefit the title companies and related industries. You are also in a strong position where you can write the contract in such a way that it is more favorable to you.

Upsides already mentioned are that you can often get at or above market prices and interest rates. I was getting 7-10% on my deals when federally subsidized rates were around 4%.

I've 'owner carried' on three properties so far. In each case I sold to renters who I already had a rental history with and whom I had some insight on how they kept up the properties. The big upside for me was that I didn't get a phone call when the furnace wasn't working or the dishwasher drain was clogged. The biggest upside of all; I have more time to go out and enjoy my early retirement!

Recently one owner sold and the another refinanced. So you never know how long the deal will last. I'm still collecting on the third deal.

On the downside (if you want to call it that) is that all that interest is fully taxed - state and federal - so forget about managing your income to get an ACA subsidy or low cost Roth conversions. Also, this isn't 'earned income' so you can't put it in a pre-tax IRA.

My buddy has an old mining cabin in La Plata Canyon. I like to backcountry ski there, maybe we'll see you out there some time?

[hesperus]

Quote:

Originally Posted by COcheesehead Bingo and CO real estate is on fire right now. I would be tempted to wait it out for a cleaner offer.

Bingo is right, literally and figuratively. Durango has a good sized wildfire near town right now, and the local market is red hot. I am going to wait for a clean offer. But I did want to get some others opinions on owner carry, as I've never considered it before. Thanks to everyone, and fingers crossed that the 416 fire will be contained. Evacuations north of town are spreading. Not affecting our property - at least not yet.

[hesperus]

Quote:

Originally Posted by kite_rider Lots of good advice already given. Some of the upside that I didn't see yet was that you don't get stuck paying realtor commissions and crazy closing costs that only seem to benefit the title companies and related industries. You are also in a strong position where you can write the contract in such a way that it is more favorable to you. Upsides already mentioned are that you can often get at or above market prices and interest rates. I was getting 7-10% on my deals when federally subsidized rates were around 4%. I've 'owner carried' on three properties so far. In each case I sold to renters who I already had a rental history with and whom I had some insight on how they kept up the properties. The big upside for me was that I didn't get a phone call when the furnace wasn't working or the dishwasher drain was clogged. The biggest upside of all; I have more time to go out and enjoy my early retirement! Recently one owner sold and the another refinanced. So you never know how long the deal will last. I'm still collecting on the third deal. On the downside (if you want to call it that) is that all that interest is fully taxed - state and federal - so forget about managing your income to get an ACA subsidy or low cost Roth conversions. Also, this isn't 'earned income' so you can't put it in a pre-tax IRA. My buddy has an old mining cabin in La Plata Canyon. I like to backcountry ski there, maybe we'll see you out there some time?

I know La Plata Canyon very well! Indeed I do ski up there, or more accurately I sometimes ski between la plata canyon and to the west over into the la plata mtns. I like to call that area the 'quiet side' of the san juans. Beautiful.

[RenoJay]

I’ve done lots of private mortgage lending. I couldn’t care less about credit score. I care a lot about equity in the property and person’s income. I would require significant cash down payment like 10% to 30%. I would never do a 100% loan because the borrower will default at exactly the time the house loses value.

[Lienlord]

Count me as a fan of owner-financed selling. We have done this with several rentals and some flips. In 7 cases (so far), we sold to occupants who put up good down payments of 10%-30% and 15 year amortized mortgages @ 8%. In another 9 cases, I've owner-financed rentals to investors with established tenants in them.
These provide consistent cashflow that will soon be used to partially fund our retirement.
Agree that it's best to get a good downpayment and make sure the payment isn't going to be difficult for them to make.

[Joylush]

Quote:

Originally Posted by calmloki We are owner carry on four places and have deed secured loans out on others. Mostly it has worked out just fine, and one can get used to the 7%+ interest and payments landing in the bank account with regularity. Everyone has pretty much covered all the gotchas. As hard money lenders the worst we got stung was when we lent through a company and didn't have any security. They went toes up and took our money with. We did foreclose on one property, which was drawn out and irksome and required having thousands in lawyer money on hand. We had one borrower declare bankruptcy, which resulted in a judge altering our contract and reducing our interest rate until the property sold. We had a borrower refuse to pay and insist on cash to sign a deed in lieu of foreclosure. Had to start foreclosure on a couple places. All in all though carrying paper has been just fine - DO use an escrow company to collect and disburse payments - good protection for the buyer if you were to kick off and removes you from doing collections and math arguments.

How do you find an escrow company? What are the costs?

[calmloki]

Nothing magic about an escrow company - all it does is serve as a disinterested third party to hold paper and collect/disburse funds as instructed. If the seller dies or vanishes the buyer can still get title after making required by contract payments. If you are buying a house you are almost certainly making payments to an escrow company. Otherwise look in the phone book - many Title companies are also escrow companies. I prefer and usually use a small local company that has had the same employees for years that I can call and get information/problem resolution from. Doesn't hurt that their fees are modest. I do not care for a company that went national, Loan Care, just because they are horribly poor compared to when they were regional.

Costs include setup and closeout fees, monthly collection fees, and fees for any services you want them to provide, like late notices or tax/insurance escrow account service. On hard money loans I have the borrower pay all those costs, on sales we usually split various fees.

[hesperus]

Quick update: Despite the wildfire, we had a near full price cash offer on our property a week ago. I thought for sure this fire event was going to undermine the real estate market for the rest of the summer. The way things are around here, quite happy to have it under contract with a quick, clean closing. It's a testament to the strength of the colorado real estate market these days. Thanks for the feedback everyone.