Cutting the Lenders out of the market. Why not?

Recently I was asked “How will property values ever come back up if the appraisers keep discounting values for the declining market and the cash Buyers want the lowest price possible?”

The answer of course is…..get the Lender out of the equation. No Lender. No appraisal needed. Higher sales price. What you talkin’ bout Willis?

Let me explain. REOs and short sales still dominate the market in my area and are still bringing values down. What’s strange about this is the fact that inventory is very low and sales are at an all time high but values are still being depressed by…….Lenders. 

So…the “No Qualifying Owner Financing” is making a comeback. Investors are realizing that Buyers will pay a premium not to have to deal with Lenders. And the Investor can get a much better return on their money by holding a mortgage than they can renting the property out.

In fact, in my market, you can expect to get 10% to 15% more for your property if you’re willing to “hold paper”. How do I know this? Because my sellers are doing it.

Here’s an example of how this works out for a Seller.

Seller paid $85,000 cash 4 months ago. The intent was to rent it out for $1,100 a month. After expenses he would net about $750 a month. After 5 years the property may be worth…….well we don’t know do we? We do know if it were rented with no vacancies and no repairs (like that will ever happen) he would have received $45,120 in income. Roughly a return of 53% over 5 years.

Instead, what if he sold it for $120,000 with $25,000 down @ 8.75 with a 5 year balloon? By the way this property would appraise for $110,000 to $115,000 right now. It was purchased right because my buyer made offers on 14 properties at the same time. He ended up getting a deal on this one,

OK back to my example. With Owner Financing the payment would be $750 a month (same as the Net rent). After 5 years the balloon payment is $91,000 AND he would have received $41,500 in interest payments. $25,000 + 91,000 + 41,500=$157,500!! This a profit of $72,500 or a return of 85%. Roughly 30% better than renting AND he doesn’t own the property which means no maintenance or management.

Now folks these figures are not exact but they give you a real good idea of how owner financing works for the Seller.

And the Buyer? Well they can get a good house with a non qualifying mortgage and very minimal closing costs. It’s a win all the way around. The only loser? …Lenders!!

What say you? 


The BIO for Bryant Tutas

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