The new gold mine in real estate house flipping is to owner carry folks. Even Warren Buffett jumped in with this concept when he purchased over 150+ homes in Lincoln, NE. With recent restrictions on bank lending and poor interest rates (great for home buyers with perfect credit and have a W2 job) that banks are contending with, it is no wonder that banks still remain open and are doing business.
The situation that our federal government has put us in has helped real estate investors in a subliminal way. At first glance, home buying is still nominal and one would think that house flipping days are over. But this is where the smart investor will find that you can still “sell your home” but with an alternative method. Owner carries.
The difference between owner carries and rent to own are pretty major. With owner carries, the buyer “has skin in the game” when it comes to purchasing the investors home. The buyers are less likely to walk away from the deal once they make at least a minimal of 10% on the home. Whereas, rent to own, the “renters” will usually not complete the transaction into home ownership since there is little down on the home. With our personal experiences we have never had a successful completion of home buying. Yet, with owner carries, the outcome is usually successful within a year to 5 years depending on what your contract states.
With owner carry, the home buyer is responsible for all home maintenance whereas the rent to own, the investor is still responsible for all home maintenance. With owner carries, the 10% down is the cost of your doing the paperwork for them to close on the home and to afford the escrow account you set up to help protect the investor and the buyer from fraudulent issues when it comes to paying home taxes, insurance, and mortgage. You the investor carry the note with the interest you determine based on the buyer’s credit score, charging more for lower credit scores because you, the investor, are taking on risk. Most interest rates are about 1-5% over the interest of the investor’s mortgage rate. Some investors do charge an ungodly amount of interest, which we believe can be detrimental to both parties. Make the interest rate where it is still really profitable for you but that the buyer can afford reasonably to stay a long time or to be able to resale the home when the time comes and be able to pay you off. The whole idea of owner carries is to help folks obtain their “American dream,” especially those who are just on the cusp of less than ideal credit scores or if the buyer is a self-employed business owner or contractor (most banks won’t recognize these folks who aren’t W2 wage earners).
And there are much much more advantages to doing owner carries—but we will save that for July’s blog.