The following example is intended to provide a more thorough understanding of how this type of owner financing can be structured and how both the seller and buyer can benefit.

Sally is interested in investing in real estate, but does not want to be a landlord or have to be responsible for all the maintenance, repairs, tenant turnover, etc.  So she talks to Keyrenter and decides to purchase a property and then resell it with owner financing terms.  The goal is to find a single family home in a location where average people and families want to live.  High demand areas where homes typically sell quickly and rent quickly and where rental values are stable and have a history of slow growth.

Keyrenter helps her buy 3 bedroom, 2 bathroom, 1 car garage starter home worth $200,000. She puts 20% down so she can leverage for a higher return and keep her costs low (no mortgage insurance) by only financing $160,000.  Because of her good credit, she is able to qualify for a lower interest rate and her monthly payment including taxes and insurance is $970.

After minimal upgrades to fixtures, paint, landscaping, and cleaning totaling $3,000, Keyrenter begins advertising the home for sale.  The price of the home is based on the monthly payment, which is intentionally set at or close to market rents for the home. The ads and sign are simple and state:

Sam and Michelle have been renting homes for the past 8 years.  They have had to move 3 times because the landlords decided to sell, move back, or rent to their own family.  They are tired of being uprooted from their neighborhood, schools, friends, etc.  They want to buy and claim their ground and have stability and security, but unfortunately do not qualify for traditional financing.  Sam is self-employed and also has some past credit issues but they pay all their bills and have great rental history.  They have money saved up and are exploring their options.  They happened to see the ad online and called Keyrenter to find out more about owning the home.

The contract is put together with the buyers paying $20K down and a 30 yr fixed mortgage with a monthly payment of $1,500.  The payment is based on the following:

• Loan Balance: $230,000 ($245K purchase price less $15K downpayment)

• Interest Rate: 6%

• Principal & Interest Payment: $1,380

• Taxes: $120 (same amount as Sally pays)

The payment is made each month to Keyrenter’s Escrow Service which makes the process seamless by paying Sally’s underlying mortgage, escrows and pays taxes and insurance, and pays Sally her cash-flow of $455 ($530 less the service fee of $75). Since Sally does not have maintenance and repair responsibilities, she can expect the same cash-flow each month.  

Sam and Michelle are now enjoying home ownership as Sally is enjoying cash flow without the responsibilities of a landlord.

Case Study Analysis

Let’s now analyze this example as well as look at the numbers and the return that Sally is getting using this strategy as opposed to keeping it as a rental.