Investors who sell homes wholesale have been led to seek out owner financing deals early on, but while they are potentially very profitable, they can also present their own challenges and dangers, especially in today’s real estate market.

Wholesaler-financed homes, lease options, rent-to-own offers, and properties with owner-transferable mortgages or other types of assumable financing can open many doors for real estate investors. Owner financing means not having to get new bank financing to make purchases or sell homes, and even simply changing real estate contracts can make reselling much easier.

Today, these offers can be incredibly valuable and attractive to new wholesalers starting out with limited resources and little to no cash of their own or credit. Similarly, they can also help veteran investors make the most of current market conditions and increase their volume to make even more money.

These strategies have come full circle and have become very popular again due to the mortgage credit crunch and home value roller coaster that has taken place over the last seven years. However, while seller financing deals may seem like a dream come true and offer the ability to turn homes around faster and easier with little or no down payment, there are potential pitfalls that can trip up investors and make them waste money and time, and see their reputations bruised if they are not aware of them.

So what’s wrong with wholesale lease options or seller financing homes?

Many view these as zero risk deals as little to no new money is injected and usually none of it reflects on personal credit. However, there are two main threats in today’s market that real estate wholesalers need to be aware of.

1. Ability to resell

Whether dealing with wholesale lease options or owner-financed contracts, investors must perform extensive due diligence to ensure properties can be sold and on promised terms. Today, the market is packed with underwater homes and properties with a wide variety of links. This can prevent resale or refinancing, or at least absorb so much capital that it is not feasible or profitable. So make sure you know exactly what issues may affect the title before you sign.

2. Ability to refinance

Many of those wholesale lease options or seller-held private mortgage properties don’t give a second thought to end-buyers’ ability to refinance in the future. They are in, out and paid for long before then. However, if tenants or end-buyers don’t have a plan to fix their credit and are carefully documenting their payments, they may find it impossible to refinance a long-term loan before a private mortgage shoots up or the lease option expires. .

This may not immediately and directly affect your own wallet, but it may affect performance in the long run. The more you do to educate and help both parties make it a smooth and profitable transaction, even when you’re out of it, the more they’ll share it and send you referrals.