is seller finance on a 1.1 mil rental possible

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is seller finance on a 1.1 mil rental possible

John Castolene
Member since 2021 · 4 posts · 2 votes

id like to purchase a property with good cash flow but would like to seller finance, is this possible?

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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
4y

@John Castolene sure, but why would a seller in 2022 do that? There is so much hot money in the market chasing properties. If nobody wants to buy a property it might be possible, but that says something about the property.

I think it was different when rates were 8% and the market was slow. Seller would make good interest, there was more to split. I think the chances to get Seller financing from a tired investor is much easier than from a residential seller, so a bigger deal is probably easier.

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y

    Yes.  Seller financing is completely dependant on the seller's willingness to do it, and the property's "ability" to do it.

    The seller must be OK with getting their money in pieces instead of all at once.  When a seller has high equity it is usually one of the reasons why sellers want to do seller financing.  If they get all of the sale money at once, it's an enormous tax burden.

    The property must have enough equity, or more accurately as little still owed on it by the seller, for the buyer to need as little cash upfront (nothing owed is the best) as possible.  Remember, the seller has to pay off all outstanding debt (mortgages, etc...) connected to the property when they sell it.

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  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    4y

    @John Castolene sure, but why would a seller in 2022 do that? There is so much hot money in the market chasing properties. If nobody wants to buy a property it might be possible, but that says something about the property.

    I think it was different when rates were 8% and the market was slow. Seller would make good interest, there was more to split. I think the chances to get Seller financing from a tired investor is much easier than from a residential seller, so a bigger deal is probably easier.

    3Reply
  • Adam McQuiston
    Rental Property Investor · St. Louis, MO · Member since 2016 · 32 posts · 12 votes
    4y

    It's absolutely possible. I usually would stay away from the term seller financing, it tends to give them an instant no reply. Approach it as holding a note and explain the benefits and takes them out of the liability position. 

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  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    4y

    Yes, I have gotten seller financing on a beach side house in Florida, twice. First, I asked. And I explained how they would get a lump now and continue getting the cash flow, but with no tenant. And I finished with how it would lesson the impact of capital gains taxes they would have, as they don’t get all their money in one year. 

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  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    4y

    @John Castolene completely possible but the trick will be finding a seller willing to hold the note. The value proposition to the seller is making more from the sale by “being the bank” and collecting a few years of interest payments on top of the sale price, plus lightening the load of their capital gains tax burden by allowing them to pay those over a few years instead of all at once. They will get completely passive income off the property without carrying any risk, dealing with tenants, or having to worry about maintenance/repairs, capex etc. If you default, they get the property back and keep the down payment plus whatever payments you have made. We did this on an $800k quad that I found off market: 25% down, 5% interest-only, 5 year balloon (about 1% higher than prime rate at the time which I believe is typical for this type of situation). Had a lawyer draft up a promissory note for us. The advantage to us was much lower payments/ increased cashflow thanks to the payments being interest-only, no competition from other buyers/ no bidding war, and it didn’t effect our mortgage debt limit of only being able to hold 10 conventional mortgages. The seller was an older gentleman selling off all his properties so he was happy about not having to pay 6% in agent’s commissions, being able to spread out the cap gains hit over 5 years, and getting the extra profit from collecting 5 years worth of interest payments without having to worry about toilets or tenants. We refinanced into a portfolio loan product with our local credit union in year 5.

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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    4y

    It sounds to me more like you want to do a deal, but don't want to pay for it if your only ask is "id like to purchase a property with good cash flow but would like to seller finance, is this possible?" Anything is possible, but why do you want it? Because you don't have the capital? And if not, do you have experience with other deals where you could serve as a tax savings asset to an investor looking to offload the responsibility, but not looking to take the hit. Do you have other properties? Do you know the key words to look for or the lists to build to get these leads to the top of the funnel?

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