How to offer on the house I rent?

Question

I have been renting a house in Kaneohe, Hawaii for a year. I know the owners are an older couple who live on the mainland. We deal with the property manager only, but i met the owners once last year when they came to Oahu for vacation. They inherited the house 10 years ago. I ran a property search through a title company and it looks to be free and clear. I want to offer to buy and ask for seller financing. In my mind, they have the house for retirement income. I want to convince them to lower their risk and stress level by taking a mortgage payment from me instead of rent. My plan is to live here for 3 more years, make improvements over time, then rent it out for cash flow. Maybe come back to retire after out of the Navy.

How would you break the ice? How would you make the case for seller financing? Any other thoughts you have?

Paul Murch · Answer

Thanks for the input. I am going to draft a letter tonight and give it a shot.

Simon Campbell · Answer

Typically Land Contracts (owner financing) are made with only around 5% down. Long-term tenants often do not need a down payment.

I would advise to be upfront and honest with the owners. Tell them how much you love the house and would like to buy it on a land contract and then ask them if they would ever consider it.

One way to help convince them is to run the numbers. First, figure out a fair price for the property. Calculate a payment based on a 30 year amortization at lets say 1% over conventional interest rates.  Tell them what would be the payment and then sweeten the deal by telling them that they would no longer be responsible for taxes, insurance or maintenance costs. Then make sure they understand that they will get a pay off in either 3 or 5 years. Providing them the figures may interest them more than just asking if they will sell.

Let us know what happens.

Nan Wilson · Answer

I just did this, with our house, which closed last week.  We had almost exactly the same circumstances and ongoing plan.  We called up the  owner, and offered 20% down, requesting seller financing.  Without even discussing a purchase price, he said yes.  Because we've never purchased before, we decided to use an agent to represent us, and I'm glad we did.  She held our hand through the process AND negotiated the details.  We got a deal of a purchase price, with a balloon in five years.  The interest rate was much higher than we offered (5%), but the numbers still work for affordability, and cash flow when we rent it out in a few years.  The only thing I would have done differently was offer a LOT less for the downpayment.

Michael Mazzella · Answer

...and MAHALO for your service to our country, Paul.
	
	~Michael

Michael Mazzella · Answer

Aloha from Hawaii Kai, Paul!
	
	I love Kaneohe - I'm flipping a couple of houses there now. Here are a couple of thoughts for you to consider.
	
	Since in this case a face-to-face meeting is not practical, a phone call works better than a direct mail letter. I would simply tell them that you really like living here, and if they'd consider selling, you'd be very interesting in buying. 
	
	If you get a yes, then I'd explore seller financing options with them. Seller financing, when done correctly, is a very good deal for the seller. First, they're making extra money from the amortized interest payments. Second, the loan is secured with the property as collateral, so if you default, they can foreclose on the note, take the house back, and keep all the money you've already paid them. 
	
	To roll out your plan, Paul, I would also be farming for additional houses to pick up and add to your portfolio, so you're not relying on the outcome of this particular transaction. Kaneohe is a great area for this, it's an old, well established town. Lots of opportunities there!
	
	Feel free to reach out an connect with me if you'd like to continue the discussion.
	
	Create an Awesome day!
	~Michael

Brandon Mendoza · Answer

Hi Paul,

I would send them a letter that you are interested in buying the house from them. If they call you, present them your seller finance offer.

What I would do is make a mind map on the seller finance option and lay out all benefits to the seller. Like How much you are going to pay? What terms are you proposing so they can know how much they will make from interest.

For instance mr. Seller I would like to offer you this amount for you property and if you would be interested in seller financing. If they are cool with it or don't know what that means, then present your seller finance offer.  Such as I would like to pay you this amount  over a period of this many years, and at the end of the term this is how much you would gross (=purchase price+plus the interest).

I hope this helps.