Why We Prefer Owner Finance
Finding your first deal can be the most difficult thing you do in real estate. What people need to realize is the importance of just getting a first deal done and over with. I was there, after listening to 800+ podcasts about multifamily commercial real estate I had this perfect deal in my head. I simply over analyzed the fact that your first deal is more about a learning experience than actually getting a good deal.
So fast forward 8 months later we find this deal on Craigslist which was for sale by owner. Our first learning experience was financing, Amy and I make good money and our debt to income ratio was perfect. After realizing how difficult it was going to be to obtain bank financing on our first multifamily property the hunt was on for a better option. Without a track record in commercial real estate (5+ units) banks and credit unions want high down payments and unfavorable interest rates. The main reason we originally looked into commercial real estate was the fact that lenders would be focused on the asset and not so much on me. This is true for all deals except your first one and since we were focused on 16+ units it was going to rather difficult to get adequate financing. This leads us into why we prefer owner finance deals while we are self-funding this first deal. As I mentioned our first multifamily real estate transaction was through owner financing terms where we used the seller bank. We agreed upon terms that were favorable for both buyer and seller allowing us to successfully purchase our first 16+ unit apartment complex. The buyer incentives were obvious lower down payment (20%) better interest rate (5.5%) amortized 10 years with a balloon in 4 years. Much lower closing costs since you are not pushing the pile of paper around throughout the transaction. The seller benefits here too by something people love to avoid if possible capital gains tax. See by the seller agreeing to owner financing they would be paid their money for the property over a set period of time along with interest to make it worthwhile. Owner financing is truly a win win. Not all sellers are willing to finance, it is based on their particular situation but it never hurts to ask.