A Guide to Owner Financing: Creating Notes and Securing Consistent Returns

Owner financing can be a powerful strategy for investors looking to diversify beyond rental properties, offering steady income without the hassle of tenant management. Here’s a structured breakdown of owner-financing deals, including sample deals that demonstrate the potential returns on investment (ROI) and effective financing strategies:

Steps for Setting Up Owner-Financed Deals

1. Gather Applicant Info: Once you’ve found a buyer, request a completed mortgage application, copies of identification, recent bank statements, pay stubs, and any retirement or savings accounts. Assess their debt-to-income ratio to ensure they can handle mortgage payments, ideally keeping debt under 40-45% of gross income.
2. Underwriting: For owner-occupied deals, work with a Residential Loan Mortgage Officer (RLML) to finalize underwriting, costing around $500 to $1,000 per deal, ensuring legal and financial soundness.

Sample Deals for Owner Financing
Sample 1: With a property purchased for around $12,000 and sold at $29,000, a small down payment led to a high mortgage interest rate. Over a five-year term, this generated a 200% ROI and a 60% annualized return, illustrating how high returns stem from note creation.

Sample 2: Another deal with a $69,900 sale price and a 5.5% mortgage rate yielded over $120,000 across 15 years. With minimal upfront costs, the annual return remained substantial due to strategic loan structuring and steady monthly income.

Sample 3: A high-performing deal involving a $35,000 sale and $20,000 down payment achieved an infinite ROI due to the initial down payment covering the purchase cost, offering a consistent 8% return over two years.

These examples showcase the flexibility of owner financing, providing high returns with relatively low initial investments. This method allows investors to build profitable, reliable income streams with options to repeat the process, reinvest, or cash out as desired.

Why Owner Financing?Owner financing offers multiple exit strategies: you can continue receiving payments, sell the property, or re-lease to another buyer if the initial deal falls through. It’s a great addition to any investor’s portfolio, yielding returns beyond those typical in stock portfolios or traditional investments.

Whether you’re an experienced investor or new to real estate, owner financing can offer substantial returns and long-term growth potential, making it a strategy worth exploring. 

To learn more watch our video explaining the sample deals