Real Estate: Owner Financing/Owner Carry

For the past year or so I've been looking more and more at Real Estate as an investment. Currently my wife and I are renting a 3bd/2bath from my parents, along with the house I have about an acre and a half in the back with two shops. Which I run my business out of. A friend of mine was telling me the other day how his dad has a duplex which borders the back corner of our property. His dad moved to Texas and had two seperate issues with his tenants growing in them(cops came and raided the place). He was saying he's wanting to get out of the property because he can't keep up on the maintenance and doesn't like stressing about whats going on with the duplex. He offered the house to me since I'm right next to it and brought up Owner Financing/Owner Carry. Has anyone on here or does anyone know of anyone who has done this? How they set up the payments and stuff like that? He went in after the last tenants got busted and replaced the carpets and checked to make sure nothing was wrong with the house. Anyone have experience?

 

Just saw your post. I did something like this a few years ago with a Gentleman as a "Lease to own".

Essentially the contract worked out where I would lease the house for two years and then purchase at an agreed upon amount (with my own financing). I found out there were two main problems with this contract:

1. The agreed upon amount was arbitrary, should you actually enter into an agreement like this (In this market) you need to have it stipulated that if the agreed upon amount is above the appraised value of the house then you would negotiate upon the appraised value of the home.

2. The money paid as part of the lease would be accepted as a "Down payment" to the seller. The bank doesn't look at it this way. Unless the money is brought to closing, essentially the Hud statement would reflect the sellers price as the agreed price, minus monies paid during the lease.

Ultimately about 1 year into the two year lease, the seller defaulted on his mortgage and the home was foreclosed on. Despite my own best efforts I wasn't able to buy the house at auction either as I wasn't prepared to do so.

My advice to you is that if you cannot purchase the property through a traditional/FHA/USDA mortgage, then you should have a real estate lawyer investigate the terms of owner financing for you.

Regardless of what happens, leave yourself an out if the seller falls through in the contract. It happened to me and it was a nightmare.

 

I bought my first house that way. There was no bank involved--the owner owned it outright. The deal was set up so the payments were made to a title company. When I paid it off I got a clear title. Somewhere in the process the original owner sold the contract, but that did not affect me.

I second the recommendation that you get a lawyer involved in setting up the deal if you go with seller financing.

 

I had planned on getting a lawyer to set up a contract of some kind. I have spoken to a mortgage broker about a year ago, they mentioned something about first time home buyers in our area and get some USDA assistance or something. The way I was looking at this property that my buddies dad is offering is not to live in, but renting out the two units. I believe the broker said something about if I went through USDA I had to live in the house for atleast 1 year, and don't really want to waste this first time buyer USDA thing for rental property. I've been trying to do some online homework on this, but I'll be contacting a lawyer to talk it over with him/her.

 

I did a USDA mortgage on my home and it was an absolutely amazing deal. If I were you I wouldn't waste it either.

 

Yeah thats the way I look at it too. The county I theres only one city that I couldn't use the USDA mortgage in, but I would never live in that city even if I could use the USDA.