Out of State Owner financed Purchase
This real estate deal is a deal I did recently out of state. I have never had a chance to see the property and still haven't to this day. Although for me it is a great deal, I do not encourage anyone to start out with an out of state property, especially one they didn't go see for themselves personally. I do however feel the purchase of this property is a good example of getting into a great move in ready property that has a large amount of equity, without having to use a large amount of money. If you are new and like this method, stick to finding properties around you. Settling for less equity is fine if you have too. The extra piece of mind that you will get being able to drive over and see the property will be worth making less money on it. If you are experienced and have money to back deals like this without worry then its a great way to build a larger portfolio or make extra cash out of your area.
I am bringing this property up because it is a great example of multiple facets of real estate. Off location properties, low money down and creative financing.
Often when I go on vacation or out of state for work, I will look up the area to see what the real estate market is like. I usually get on realtor.com and see what houses are being listed for and then I do a quick search on craigslist for anything that might jump right out at me. I do not typically plan on buying out of the area but it is always fun to check out other areas just to see how the large variance in prices can be. When I see a really good deal jump out at me I will do further research.
On this trip I was head a couple states away and did a quick realtor.com search. Prices were comparable to my home town, a very similar price range which was very comfortable for me. I know this type of market very well so when I got on craigslist and did some messing around I noticed one place in particular that stood out. It was 1800 square ft and in great condition yet they were asking only 150,000. This only kind of got me interested as that kind of deal is fairly easy to find on craigslist, but what really got me to consider it was a little note on the ad that said, owner financing available with at least 20,000 down.
That was all I needed. I got on zillow.com and did a quick search. From what I saw earlier on realtor.com I was thinking the house was most likely worth 185,000 in its condition, give or take. Zillow is a tool I like to give me confirmation (its not perfect but a good start). So I got the address and typed it into zillow. Up pops the z estimate at 192,000 and its zillow history was never that far below that number. In no instance was it under 150,000 but it was much higher than 190 during the boom. This made me pretty confident that it was stable at the price they were asking. But because it was out of state I wanted an even better deal.
I like owner financing, any chance I can get a deal on owner financing I will usually pay more but out of state purchases are different (at least for me). I want the best price possible with the least amount out of my pocket possible. I will put more money into a deal if it gets the price dropped more than dollar for dollar but the less money in, the less money at risk.
Ok, I called the number and began talking to the guy that listed it. Turns out he remodeled it and used his dads money. He had a tough time selling it at a higher price (much higher) and his dad decided he was taking it back. So I wasn't really talking to the right person. He gave me his dads number. I gave the father a call asked him the situation. His reply was that he just wants to get some income coming in or sell the place. He owned the place outright but wanted to either get the cash or get someone to buy it on an owner contract. I guess he is retired and has several income properties that are bringing him money.
I told the guy Id be in town and work something out with him but I though I needed the price down a little. I also only wanted to use 5000.00 or less of my own money to get into this house. Out of state buying is just far more risky and the less money I have in the better. SO I just asked, what is the lowest you will take with owner financing still in place. He said he would go to 135 with 20,000 down. This was great, except I didn't want to put that much down. My next question was what if I put 10,000 down but only came out at closing with 5,000 and made larger mortgage payments until my 10,000 was paid up. He said he thought he could do that but wanted to keep the overall asking price a little higher at 145,000. After that response I told him I would consider it but if he went down to the same deal with 140,000 asking price Id send the earnest money over night to him before I got there. He thought for a couple seconds and said that would work.
I love these types of deals. Working in creative financing where you can keep your cash in hand allows you to hold your money longer or use it on more deals if they come up. I was set on meeting him to sign over with his title company but ended up not making it over. This complicated things a little. I wanted to at least see the place in person before I signed and gave the rest of the first 5000 but now I wasn't headed over.
This property was in a great location, it seemed to be in great shape and I had to put little down. So this problem did not keep me from following through. Next post will explain how I checked out the property and the closing process when you aren't able to be at the title company that is doing the closing. Ill also cover some other important details about the contract and more.