Seller financing & Rent to Own: 6 figures on one deal with no rehab or money.
Today we’re going to walk through how to pair two creative financing strategies: seller finance and rent to own in order to make 6 figures on one deal with practically no cash invested and zero rehab. If you haven’t heard of either of these terms, let’s do a quick review first.
Seller financing, also known as owner financing, is a real estate transaction where the seller agrees to finance part or all of the purchase price for the buyer. In other words, the buyer pays the seller over time rather than obtaining financing from a traditional lender, such as a bank or a mortgage company.
In a typical seller financing agreement, the buyer and seller negotiate the terms of the loan, including the interest rate, repayment schedule, and any penalties for missed payments. The buyer makes regular payments to the seller until the loan is paid in full. In some cases, the seller may require a down payment or a balloon payment at the end of the loan term.
Rent to own, also known as a lease purchase, is a real estate agreement where a tenant rents a property with the option to buy it at a later date. The agreement typically includes a lease period, during which the tenant pays rent to the landlord, and an option period, during which the tenant has the option to purchase the property. In this case, the tenant gives a down payment to move in, pays rent and then once they can qualify for a mortgage they use that mortgage to buy the owner out.
Alright on to the good stuff! Let’s talk about the actual deal.
Back in 2021 I had a seller reach out about a house they had just inherited unexpectedly. It was paid off and FULL of things. So I knew they were looking for an easy solution to sell the home. After learning more about their situation and motivations, I learned someone had given them a cash offer for $34k (probably a flipper). However, they were really stuck on getting $70k as that was the tax assessed value on the property.
I knew that I didn’t want to flip this property or buy it with cash. But I knew with seller financing I could be a LOT more flexible with the purchase price if I got the right terms. So here is what I proposed:
-$0 down payment (I’ll pay closing costs)
-$300 monthly payment. 100% Principal AKA zero percent interest 😍
-10 year term with a balloon payment
-$70K purchase price
Sounds too good to be true? The seller was beyond excited with the offer. 👀And I was too! No bank would ever give me a 0% loan, but this seller was willing to because they were more focused on getting the easy sale and that higher purchase price.
Now do you understand why creative financing is so powerful?! 🎉
I know.. you're probably wondering, “How did you make money off of the deal?!” I decided to use the Rent to Own strategy to find a tenant buyer to give me a $7,000 down payment, and move in. And I sold it “As Is” meaning I did absolutely zero rehab. Now, I cash flow $800/month on this property. Better yet, I have the potential to make six figures off of this one deal!
How in the heck do you get 6 figures from $800/month cash flow?
Let me show you. I will make money in 3 phases on this deal.
Phase 1: Acquisition
Paid ~$2,000 in closing costs to acquire
Collected $7,000 down
Net = ~ $5,000
Phase 2: Cash flow
Paid $36,000 principal pay down ($300/ month x 10 years)
Collected $132,000 in rent ($1,100/ month x 10 years) = $132,000 in rent
$24k in taxes and insurance
Net = $132K- $24K - $36k = $72k in cash flow
Phase 3: Disposition (Selling the property) in 10 years (that’s the end of my term)
Will owe $34K ($70k purchase price-$36K of pay down)
If Assuming only 3% appreciation, the $70k house is worth $94K
Net= $94k value - $34k owed = $60k in equity
So as you can see a good Rent to Own deal will make you money on the acquisition (Getting the tenant), the cash flow (keeping the tenant) and upon disposition (selling to the tenant).
Overall this deal could make $137,000! 👀 It is however important to note that this tenant is able to buy me out at any point according to their agreement. So it is not guaranteed that they will be renting for the full 10 years. Either way, the power of creative financing here is UNREAL. Hopefully this has showed you how important it is to learn about creative financing and do a deal for yourself.
If you are looking to learn more about creative financing make sure to check out our podcast mini series on creative finance on our Women Invest in Real Estate podcast.
If you are looking to dive even deeper then check out the Creative Finance Playbook. This is the exact mentorship I used to learn creative financing back in 2021. You can get $250 off by using the discount code “WIIRE.”
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-Grace Gudenkauf, WIIRE Cofounder