Landlording vs. Owner Finance Note Holder: Which is More Profitable?
Hey gang, this is Mike with My Real Estate Dojo. Today’s topic is a critical one for real estate investors: Should you be a landlord or an owner finance note holder? Let's dive into the pros and cons of each approach and determine which might be more profitable for your real estate investing journey.
The Case for Being a Landlord
Benefits
- Tax Advantages: Being a landlord offers significant tax benefits. You can deduct expenses like mortgage interest, property taxes, operating expenses, depreciation, and repairs.
- Inflation Hedge: Real estate typically appreciates over time, providing a hedge against inflation.
- Forced Savings: Investing in property forces you to save money since you can’t easily liquidate your asset.
Drawbacks
- Maintenance Costs: As a landlord, you’re responsible for property upkeep. Issues like a broken AC or plumbing problems are on you to fix.
- Tenant Issues: Dealing with non-paying tenants or evictions can be stressful and costly.
- Vacancies: When a property is vacant, it becomes a liability instead of an income-producing asset.
The Case for Being an Owner Finance Note Holder
Benefits
- No Maintenance Hassles: When you hold the note, the buyer is responsible for maintenance and repairs.
- Higher Quality Buyers: Buyers who are purchasing with owner financing typically have more skin in the game and are more responsible because of their down payment.
- Consistent Cash Flow: You receive regular payments from the buyer without dealing with property management.
Drawbacks
- Foreclosure Risk: If the buyer defaults, you’ll need to foreclose, which can be a lengthy and expensive process.
- Potential for Default: There’s always a risk that the buyer may not make timely payments.
Understanding Owner Financing and Subject To Investing
Owner Financing
In owner financing, you act as the bank. You sell the property to a buyer and carry the note, meaning the buyer makes payments directly to you. This method can be highly profitable because you can charge a higher interest rate than what you’re paying on any underlying mortgage.
Subject To Investing (Subto)
Subject to investing involves taking over the seller’s existing mortgage. You agree to make the payments on their behalf while gaining ownership of the property. This strategy allows you to acquire properties without using your own money or credit.
Wraparound Mortgage
A wraparound mortgage is a type of owner financing where you keep the existing mortgage in place and create a new mortgage around it, which the buyer pays. This can provide you with positive cash flow and increased interest income.
Real-Life Example: Pros and Cons
In my experience, there are clear advantages to both strategies. For instance, as a landlord, I’ve benefited from significant tax deductions and property appreciation. However, I’ve also dealt with the headaches of tenant issues and maintenance costs.
On the other hand, being a note holder has allowed me to enjoy passive income with fewer hassles. By offering seller financing and using subject to strategies, I’ve been able to sell properties at a higher price and interest rate, creating a steady cash flow without dealing with property repairs.
Conclusion: Which is More Profitable?
The choice between being a landlord and an owner finance note holder depends on your investment goals and tolerance for risk and hassle. If you prefer a hands-off approach and steady cash flow, note holding might be more suitable. However, if you’re looking for long-term appreciation and tax benefits, landlording could be the way to go.
At My Real Estate Dojo, we teach both strategies to help you diversify and maximize your real estate investing portfolio. If you find these insights valuable, please share, like, and comment on our videos.
For those who want to take their real estate investing to the next level, join our Smart Coaching Program. This performance-based program ensures I only get paid when you close deals. There's a small enrollment fee to filter out the less committed, but if you’re ready to hustle, we can achieve great things together.
Make 2024 your best year yet. Happy investing!
Feel free to reach out if you have any questions or need further guidance. This is Mike with My Real Estate Dojo. Have a great day, gang!
Disclaimer: This video is for educational purposes only. Individual results may vary. Always conduct your own research and consult with a professional before making any investment decisions.
Thanks for clicking the LIKE and Subscriber button. Thanks for watching!!
