Seller Financing - The Best Option for Bad Credit?

Question

Hello, Friends,

I made poor decisions with credit cards between age 19-24.  Now, I'm 25 and I'm working hard to fix this problem.

However, I fear my bad credit will prevent me from acquiring assets and increasing my cash flow.  I'd like to begin my journey by purchasing a tri/fourplex.  Is seller financing the best option I would have if I don't qualify for any loans?

I am in somewhat of a unique situation.  I'm in the military and I'm PCSing to the states next month.  However, due to complications, I still have no idea where I'm going.  This makes it difficult to know which banks, and opportunities are in the area.

I'd greatly appreciate any advice.  Thanks for your input!

Account Closed · Answer

I purchased two different properties, many years ago, with seller financing and I had bad credit.

Both were offering seller financing, and it was a depressed market at the time.  One was raw land in WA state, and the other a condo in CA.

Both times I offered their asking price but with a low down, but a higher than market interest rate by several points.  For instance, the market was at around 7% interest, as I recall, and I offered 10% interest.  The raw land was purchased around 1995 in a small mountain area of WA, the condo around 1997 in Davis, CA.

If they are having a hard time selling, and you offer them more interest than they can make from a savings account, so that they don't have much to lose, they may accept your offer.

They can always foreclose on you and sell it again when the market picks up.

The trick is to find a place where the seller can't find a better offer than yours.  Even if you have to offer higher than their asking price and a high interest rate to get into it, if you think you can still profit by buying it that way, do what you have to do to get into it.

That was my theory, and I profited both times, selling just a couple years later.  On the raw land, I improved it with a driveway, fence, septic and well.  The condo just appreciated when the market improved.

Oh, the condo owner countered with wanting a 10 year balloon payment payoff.  But, I sold it two years later at a profit, so the balloon payment was not an issue.

George Maka · Answer

Hi Ethan Mace

Your best option is going to be the one that gives you the best deal. Although it may be harder with banks because of your credit, don't rule them out. Give a few a call and see what they can do. Seller financing is more negotiable and can be better, but also may be harder to find.

Best of luck,

George

Account Closed · Answer

I paid cash for everything as I saved up for it.  I put $2,000 down on a $16,000 selling price, paid him 10% interest, and I cut down trees that were along the road frontage (about 600 feet of about a 20 foot deep strip of douglas firs) and used that money to put in the well.  Paid someone to put in the driveway, the septic, electric pole,.  It took about 2 years.  Lived on the property rent-free in an airstream trailer during that time.  Total to improve it back in 1997ish, was about $10,000.

I took the profit from that deal (close to $20,000) and bought my first new car and used it for a downpayment on the condo.

I'd do the raw land improvement again, actually, now that my life is simple again.  if you don't mind living in a trailer while you do it, it's a fairly sure investment.  Improved land is always worth more than raw land.  If you can live on it while you do it, it's a good deal.  Everything will take much longer than you'd think, especially getting the well drillers to come.  They're always really booked up, and they never know how long it will take at the jobs before yours.

If the land has timber on it, make sure your contract doesn't have a "timber clause" that prohibits you from cutting down and selling the trees.  I got lucky that this seller neglected to put one in his contract.  Ironically, he bought properties and then cut down the trees for profit, then sold the land.  On my property, he assumed nobody would want it without the privacy strip along the highway, and forgot to put a timber clause in the contract.  I kept my mouth shut, and after the deal was made, hired loggers to cut down those trees that he left.

He actually showed up yelling at the loggers, who stopped cutting.  Took me a while to convince him that suing me and stopping the loggers would only shoot himself in the foot, because I was going to use the money to put in a well, which would make the property worth a lot more, if I was to default.  He shut up and let me cut down the trees without having to go to court over it.

Anyway, if there are trees you can sell, that can be helpful, too.

Good luck!

Ethan Mace · Answer

Hi, Sue K.,

If you don't mind me asking, how much did it cost to improve the raw land?  How did you finance it?

Ethan Mace · Answer

Thanks for your reply, @George Makakaufaki,

I will certainly be going to every bank I can find, and seeing if I can be pre-approved up to X amount.  I was considering seller financing as my primary backup plan.

Seller Financing - The Best Option for Bad Credit?

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