Technique for rental properties - owner financing

Buying US Homes with Seller Financing as a Way to Create High Returns on Capital:

The US real estate market is an elaborate market where there are many tools that can be used - tools that are virtually non-existent in the Israeli real estate market.
The US market allows tremendous creativity in real estate and should be exploited.
One of the best methods for an Israeli investor to start building a portfolio of income-producing properties is to use a technique called owner financing.
Israeli investors, with an emphasis on early-stage investors, find it difficult to obtain mortgages from banks in the United States.
All the more so when it comes to homes that are worth low (eg homes of 60,000 $).
US banks will usually want to lend an amount not less than $ 100,000 to foreign investors and this is also subject to various conditions that we will not enter into in this post.
In contrast, in many US markets, low-value assets can be purchased with owner financing.
The seller will be an entrepreneur, investor or even a landlord who has not managed to sell his property at the price he wanted.
This seller acquisition technique with financing from the seller will work especially well in “slow” markets in the US (everything is of course relative…).
Examples of markets that will be particularly appropriate:
Birmingham - Alabama
Cleveland, Ohio
St. Louis - Missouri
Memphis-Tennessee
And more ...
The emphasis on market research is appropriate: a market of high returns
For example the market where on the house of 40,000 $ you can get rent of 650 dollars and more.
Or for example the market where on the house of 70,000 $ can get rental of 1,000 dollars and more.
Now a comparison is made between 2 and investors who have the same equity:
40,000 $.

The first investor was called Uri:
Uri decides to buy a house at a cash price of $ 40,000. He found such an asset at 40,000 $, which has a market value of 47,000 $, meaning that after the acquisition he has one property worth 47,000 $.
After the purchase, he finds a management company that finds a renter who pays $ 650.
We will apply the 50 rule and assume that each month 325 $, ie $ 3,900 per year.
Zai Shauri generates a return of 9.75% on his investment and capital.

The second investor is called Danny:

Danny decides to look for houses whose sellers will agree to sell him the house with owner financing.
After a period he located and purchased four such assets in the equity of 40,000 $.
Every property cost him $ 40,000.
25% of the value of each asset in equity ie 10,000 $ and the balance 30,000 $ financed by the owner selling to 5 years with the deployment of mortgage payments to 30 year and 6 percent interest.

Now let's look at what Danny has to say:

4 Properties acquired at the price of 160,000 $ and assuming that he purchased them at the price of 85% of the market value, he holds assets worth about 188 $ 1,000.
He now rents about $ 650 of them, which means $ 2,600 for all four properties.
Again according to the 50 rule the percentage remains for him each month 1,300 $ and 15,600 $ per year.
But - since he financed the mortgage purchases he received from the seller he would have to say goodbye to $ 719 a month and $ 8,628 per year.
That leaves him 15,600-8,628 = $ 6,972.
Remember that he spent his money 40,000 $ and therefore his return on capital (CASH ON CASH) is:
40,000 /, 6,972 = 17.5%
In conclusion: Uri generates a return on capital of% 9.75 while Danny% 17.5 !.
In addition, by purchasing 4 assets at a discount of 15, 28,000 created another theoretical capital for 7,000, compared with Uri, who increased his capital by only $ XNUMX.
Good luck to everyone and think creatively!

• Hi Shi. Awesome post. Definitely interesting. We would love to hear how this is done in practice and we will also put the entry into our real estate app under the Financing Unit -> Buying Homes in the US with Financing from the Seller. Thank you and we would love to hear more!
• Can you detail your monthly payment to the property for 5 years? How is the calculation?
• At seller financing
  The buyer will not be able to realize the asset or leverage it
• Amazing post, unclear interest. Funding, listed for 5 years and then deployed for 30 year, can you please explain? Another thing is information How many percent of total transactions are funded by owners? This is described as something easy but it doesn't seem easy at all on cheap properties, most often I've heard of it in Dictionary Plus.
  Thanks
• Awesome post! With lots more options and directions! Thank you Shai! Blessed are you!
• Thank you Shai!
• Thank you Shai
• How common is this way of purchasing property, if at all?
• Stunning. An accurate explanation as always.
• When the King writes, I think I have something to react to at all. And in the spirit of the Forum "Giant Giants" a great post waiting and accurate.
  I wait for a post on holsiling.
• Shay Halevy
  Thank you very much, the post is written in detail.
  I wanted to know whether the interest rate you recorded (6%) is anything realistic or everyone wants over 8
  In addition, I understand that homes that are for sale with owner financing techniques are generally overpriced
• Hi Michael, 6 percent is a rally. Purchase Issue Above Market Price: True, many of the properties offered for sale with owner financing are offered at an overpriced price and so it is required of the investor to find assets that are not sold above market price. Owner-funded properties can be found at market prices and below. Obviously the first rule is that we never buy above market price. You can also find long-standing properties on the market and offer the seller a purchase with his financing. In this box you set the rules and not the seller ...
• As a landlord you have now created a contract for 30 year.
  What if you want to leave? Will you sell on the market?
• Very interesting post. And an even more interesting option to sell an asset
• Shai, I got dizzy just from the numerical calculation
• ??
• Thanks, Shay :)
• Champion! Great explanation
• Nice post. The truth is that I was in a dilemma whether to sell one of my properties with owner financing, but I understand that this is especially relevant to properties in the profile you have ignited.
• That's how it looks from the seller's side:
• ?
• gift
  Thanks for the post
  Will this method contribute to the money leveraging differently?
  Say a loan against assets that I have, assuming that there is the same initial capital of 40, and the interest will also be 6%
• LiatMichalovitch
  This is another form ... which allows for flexibility with the money and the payment for it.
  I wrote a post about it. Look at Bendelfindia.
  On your way you need capital assets for such a thing.
  And for those who are not citizens, I need a pretty fortune
• Shai Shalom, an excellent post that explains the value to the buyer.
  I would like to analyze a similar deal from the seller's side and understand why it is worth it.

• Shay Halevy
  Are there cases where the equity needed for such a transaction is 0? Then the financing for the deal is in the seller's full time
• Some important points about owner financing (I've done some of these deals before).
  A. Was and was not already mentioned - in English it is called: owner financing, seller carry, or owner carry
  B. As a seller who gives an owner loan one of the dangers is that the buyer, who becomes the landlord, will destroy the property significantly and if the seller, who is now the bank, forecloses it in the future due to non-payment of the seller the seller may find himself with a poor level property.
  third. As a buyer it is important to be aware and beware of a somewhat complex situation where the seller currently has a mortgage on the property from another party (bank) and he sells the property with an owner's loan while maintaining the existing mortgage. Unlike the situation where the property is sold without an existing mortgage. A complex subject.
  Who's up to here and not tired / bored - the US is a sophisticated real estate market !!!
• Miriam Schory
• Yoav Ben Abu is amazing about this
• Shay Halevi Thanks for the post!
  In the example you mentioned assuming that the four properties are bought at 15% below market price. To the best of my knowledge, such assets are sold at or above market price. Another thing, after 5 years you will need to return about 108k on the remaining four assets. What happens if you don't have that amount?