As of the writing of this article, it’s definitely a seller’s real estate market in Oklahoma City.  That means that there are more buyers than sellers, and prices are being pushed up.  A number of factors are contributing, but in very basic terms, there are more people coming into the city than moving out.  And there are also demographic changes going on that are also causing an increase in the amount of housing we have available.  

It’s not certain how long this seller’s market cycle in our real estate market will last, but at some point, it will be over.  Properties will be harder to sell.  During those times, I financed the sale of several properties.  In this article, I’m going to cover the benefits and drawbacks of financing those purchases.  Here is a guideline for Owner financing and how does it work.

Beginners Guide to Real Estate Investing Oklahoma

Why Would They Buy Under Those Terms and conditions?

The main benefit to the seller is that they get a higher price for their property and a higher interest rate for the loan to the buyer.  Why would the buyer accept those terms?  There are many people who simply cannot qualify for a loan to buy a home.  It’s that simple.  They can’t qualify because of their credit and don’t want to rent forever.  

how do owner financing work

Advantages of Seller Financing

Large Down Payment. Carrying the note as it is called, can and should result in a large down payment for you. We will not finance the purchase of a property without getting at least a 10% down payment. When your buyer pays a large down payment, they are very likely to make their monthly house payment in a timely fashion.

  • Top Price. Your property will command a high price because you are offering terms.  
  • High Interest rate.  You will get a favorable interest rate for the loan you create.  This is not taking advantage of desperate people (unless you go past 12 percent interest) because you are offering them financing that they cannot get from a traditional lender.  
  • Sale Costs. You will avoid many of the costs associated with selling a property, including paying closing costs, to mission to a realtor, and inspection repairs. For More.

Disadvantages of Other Types of Owner Financing

It’s not cash.  You are agreeing to take payments instead of cash from the sale of the property.  There is no guarantee all the payments will be made as promised.  

Legal Issues. Financing the sale involves many risks from which you must protect yourself. You put yourself in the bank’s position, so if your buyer fails to make his or her monthly house payment, you may be in for a long, costly legal battle (your attorney may have to file for foreclosure). Therefore I recommend that beginning investors avoid this strategy unless they have some expert coaching and guidance.

Down Payment. Most buyers will not have an adequate down payment.  That doesn’t mean you should bend on what you are requiring for a down payment.  It means you need to be patient.  

Poor Credit. Your buyers will likely have poor credit, and come to the table with all the poor financial habits of people with poor credit.

Other Advice

  • Consider putting a balloon payment in the agreement.  That means that the buyer will have a certain number of years to pay the remaining balance of the note.  
  • Don’t sell a property with seller financing that needs tons of repairs to an unsuspecting party, or a party you know will have trouble fixing up the property.  You should not use this technique to take advantage of people.  

Are you looking for an Oklahoma property management company for any real estate investment advice? Here you go.

Frequently Asked Question on Owner Financing

Is it expensive to file for foreclosure in Oklahoma? 

Yes.  You can expect to be out of pocket $3,000-$5,000 in legal and filing expenses.  Plus, it may take more than a year for the work to be complete.

Is foreclosure the only option to work out something if the buyer stops making payments?

No.  They may agree to do a deed in lieu of foreclosure.  It involves them agreeing to deed the property back to you rather than have a foreclosure on their credit.  You will need an attorney to assist you with one of these.

Who pays the property taxes and insurance?

Answer:  The buyer pays them, regardless if that is with a contract for deed agreement or note and mortgage.  

Is it possible to sell your note and mortgage, or contract for deed?

It is possible to sell your note and mortgage or contract for deed.  However, you are unlikely to get face value for those contracts.  You are likely to have to offer some type of discount for the note, depending on the seasoning (how long it has been in effect) and the creditworthiness of the borrower.