Seller Will Carry...???

Question

I am new to the RE World as I have said before so I am looking for some help with this topic.

I am currently looking at Multi-Family Units and came across a 4 Plex that is fully rented, good area etc....and in the post it says Owner WILL Carry. I am not sure what that exactly means or how I should handle it and what to look out for. Is this a good thing or is it a Bad thing and what potential risks might there be?

Brian Gibbons · Answer

@Brandon Whitaker

Multi Family 2-4 involves Dodd Frank.

See

http://www.biggerpockets.com/blogs/3/blog_posts/39...

Multi family 5+ does not involve Dodd Frank so notes from sellers are common.

Learning about notes is not easy.

@Dion DePaoli 's posts are excellent.

So are @Joel Owens s posts.

I enjoy this site about note education.

http://www.mortgage-investments.com/sell-your-mort...

When  I negotiate with sellers, I basically have a CASH OR TERMS talk.

ALL CASH is a discount of at least 20%.

Terms is the seller carrying equity in a note or some other way.

If I am buying commercial, I like working with a realtor that has a CCIM designation.  It is a commercial advanced designation like a CFP in financial planning.

Good luck!

Richard C. · Answer

Everything Paul says is very reasonable.

But I'm going to step back a step, because it sounds to me like you were simply asking what, "Seller will carry" means.

And what it means is that the owner is willing to provide financing, so you don't need to get a mortgage from a bank.

In my experience, when a seller advertises that, they also have an asking price that is too high.  But there are posters on BP who have amassed literal fortunes with seller financing.

Brandon W. · Answer

Nate T.

Thank you for helping me to understand the Dodd Frank Act. When I read it I thought it said it applies to Owner Financing and there were a lot of regulations

http://www.biggerpockets.com/blogs/3/blog_posts/39...

I would rather not live in one of the units if I can arrange it that way I think for my situation it would be more beneficial that way. I am glad to hear its not uncommon to pay more for owner financing. I know I'll have to pay more anyways it being my first project. Thank you again for your help.

Brandon W. · Answer

@Darren Budahn

I appreciate you reaching out to give me some help. I would rather not live in the unit if I don't have to. For my current situation it would be more advantageous if I didn't. If I need to I will and I will definitely use your advise and go check out the FHA Loan.

Thank You again for your help.

Darren Budahn · Answer

@Brandon Whitaker

If you are planning on occupying the property, I would look into getting an FHA loan. As long as you occupy the property for one year, you can possibly purchase for as low as 3.5% down payment (assuming you can qualify for this loan)

Nate T. · Answer

If you are planning to live in the 4-plex then you'd be better off getting a bank loan if you can qualify.

If you are not planning to live in the 4-plex then it is not subject to Dodd Frank because it is no longer a consumer transaction. So that makes the seller financing process less complicated. But even with consumer transactions that fall under Dodd Frank it is not that big of a deal, it just means that the seller may have to hire a licensed loan officer to handle the paperwork and confirm your "ability to repay".

Paying a higher price for owner financing is pretty standard. You just have to figure out if the numbers still work for you.

Brandon W. · Answer

@Richard C.

Thank you for taking a step back for me. That was exactly what I was wondering. I have heard for someone getting there first property its okay to pay a little more if the owner is willing to owner finance. What do you think? I know by paying more that will change the equity, cash flow, and cash on cash return but what choice does someone have with no money right??

But I just found out that the seller doing an owner financing is under or subject to the Dodd Frank Act which will make it hard for the seller to do an owner financing with me anyways.

Thank you again for reaching out to help me..

Brandon W. · Answer

@Brian Gibbons

Excellent advise, I have never heard anyone talk about the rules or regulations someone is under who does and Owner Financing transaction. I never knew there was so many regulations the Owner has to follow and has to use third-party companies to check me out.

My credit is excellent my income is extremely low almost none right now my debt is also very low. But all the things I've read I was under the impression I could have someone do an owner financing (and I had the down Payment) on a 4 plex with 3 units rented out and I live in the fourth and that would suffice to show I can cover the mortgage payment as long as the numbers reflected that once all thing were plugged in like the NOI SUBTRACT THE MONTHLY MORTGAGE and if I am left with enough CASH FLOW then this would reflect I am more than capable of handling the owner financing but the Dodd Frank Act shows different unless I've misunderstood it.

Am I thinking correctly?

Brandon W. · Answer

@Paul Choate

Thank you for responding. So basically the "will carry" is suggesting the owner will finance the property. Which mean I need to get a performa to see what things look like and start my property analyst also I need to find out upfront what the owner wants as a down payment and interest rate is because that has to be plugged in to my analyst to find out what my cash flow is. Yes you are correct im looking for cash flow and will be looking at my cash on cash return as well. I think I have a better understanding on what I am getting into.

Thank you for your help.

Paul Choate · Answer

I would start with the financing. It's all about the terms.

How much do they want down? What is the interest rate and amortization period? What is the payment? What are their requirements to qualify for the financing?

With owner financing, you can over pay for a property if the terms allow the income to cover these three points:

1. Pay back the loan

2. Cover ALL the expenses

3. Pay you for the trouble

The problems come when you can not do all of these.

Others might suggest you get the numbers together on the building before you worry about the financing. I am assuming you are trying to cash flow the property. Will the rents make the payment, cover expenses and allow you to put back sufficient amounts for cap ex? If not, do you have a reserve or income to cover any shortfalls? If the payment can not cover the costs then you are counting on appreciation. If the note is a non-recourse note (they can't sue you personally if you don't pay) then you can take a chance on it without losing more than your investment of time and money. Whatever that may be.

I love owner financing. Just make sure you get your numbers right!

Seller Will Carry...???

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