by Duke Morgan

The concept of owner financing is quite well known in Houston investment property circles. In some cases, potential owners could look for full or part financing based on their specific needs. Sellers generally use owner financing to sell properties at a premium.

They also require a mortgage on the property while doing owner financing. While it seems unbelievable that a seller would carry a mortgage, sometimes it is the only recourse. This is because rather than allowing a decline in the value of the property, they would want to facilitate sale by means of owner financing.

There is no rule or restriction that owner financing be limited only to traditional residential Houston investment property. Indeed, a vast host of property types including land and real estate, commercial property and what have you.

Some of the conditions under which owner financing may be concerned include situations when the property is not moving fast in the market or if it is in a rather dilapidated condition. Owner financing is the process where the owner extends credit to the buyer without the intervention or involvement of banks or financial institutions. It has been observed empirically that owner financing is more common among investors as compared to homeowners.

Owner financing allows you to set the terms, including interest rate and payment terms for your Houston investment property purchase. You are helping the seller while generating steady cash flow; owner financing is creative deal structuring that is a win/win for all parties involved. Owner financing happens when the owner or seller of the property is the one financing the buyer so in this case the owner acts as the bank.

The buyer in turn can pay the needed amount monthly or whatever may be the agreement instead of going to the bank for financing. Owner financing can be considered with large or small down payments, it all depends on the term of the contract.

When it comes to owner financing, the seller generally asks for a higher down payment than mortgage lenders. However, the interest rate would be lower than what a traditional lender would charge on typical Houston investment property, where owner financing would come from an entrepreneur's savings.

Interest rates on Houston investment property are variable, based upon the Prime rate, with spreads set by financial institutions. Typical spreads are 1.50% to 2.50% over prime, with lower rates to investors with stronger historic debt service coverage.

Interest rates of these institutions vary. For getting lower rate, some research work becomes inevitable. Owner financing eliminates this research, as most sellers will agree to a percentage point or more below prime, with a few cases setting up zero interest financing.

If you want to sell off your investment fast and also get a high rate for it, it makes sense to offer owner financing. You may also be able to get first mover advantage and better prices as owner financing makes your Houston investment property much more attractive to prospective buyers.

At the same time, it could also mean that your property is one of the first ones to get sold in the local property market. All of which makes owner financing a very advisable and popular proposition in times like these.

Duke Morgan enjoys sharing what he's learned about Houston investment properties especially with people interested in real estate in the Houston area.