There is a package of 16 Single Family Homes in a nearby area that is up for sale. I have emailed the agent associated with the package asking her if seller-financing is an available option in which she replied yes.
I most likely will not be going through with this deal because I am very new to the real estate world and would not want to jump into something too quickly.
Basically I just wanted to post this here and gain some additional knowledge about seller-financed deals. I would like to know how you guys went about structuring such a deal, as I have read that it is wide open in terms of the repayment plan, interest, down payment, etc.
At first glance this package seems like a fairly good deal. I'll post the numbers.
16 properties for ~$725k list price
Currently they are all 100% occupied bringing in $11,500 per month.
Taxes are roughly $20k per year and insurance is another $5k.
There is management company attached to that which receives 10% of the rents so $1150 each month.
At 100% occupancy these properties should bring in close to $8000 a month after taxes, insurance, and management fees.
As I am new to this, I am wondering what else should I be looking out for? I would imagine maintenance costs could add up with having 16 homes.. but besides that?
I am also curious how you would go about structuring this deal using seller-financing?
If I was going to go after this deal, I would try to keep the down payment as close to 0% as I could and maybe stay more toward the list price as a compromise. I was thinking payments around 5k per month, that way I could still make the payments even if I dropped to 75% occupancy, for a total of 6-7 years and then have a balloon payment on the back-end I suppose.
Just trying to gain some advice, as this is pretty much a hypothetical situation for me.
How to structure the deal has little to do with the numbers.
Your closing costs will be a killer, 16 title searches, commitments filings.
If you do separate notes and deeds of trust or one large note filed on each legal, you're going to have some filing fees. Ask the best way at the recorder of deeds office to reduce those costs, but the liens must be perfected on each legal description.
Insurance agent can go with an umbrella, call them.
Call the title company and get a bid, they should be cutting you slack on some aspects, not charging the standard settlement fee 16 times, there is one settlement that has 16 times the work involved.
From this information you'll get an idea of which way to proceed, 16 notes or one note.
If one "blanket note" you need release fees for each property in the event you ever sell one property you don't have a huge note to pay off. Search BP for "blanket mortgage release fee".
If any are subject to an existing mortgage, do those separately issues that could arise don't need to effect your entire deal.
Read the seller financing posts, get a "loan servicer" search that and read.
Better see your attorney, if you know very little about financing and you're buying from some old salty investor, better get legal advice and read up .
The topic is too large to answer in a forum.
As to structuring the deal, begin with settlements required and work backwards for the most efficient method. :)
@Scott Stevenson Great question, however, it could be a case study for a real estate course. @Bill Gulley brought up some great points. I would also consider seeking traditional financing for this deal with the seller carrying back the down payment on a 5-7 year term. That way, if he has any existing financing he can pay it off, get a big chunk of cash now and still have a residual stream of income. You want to find a deal that works for each party. Real Estate deals should have a bunch of winners and no real losers. A bank would probably be happy financing 75-80% of this deal with the seller picking up the rest, although they say that they want to make sure you have skin in the game, they want to be in 1st mortgage position and make sure they don't have their neck's out too far.
I would first run your numbers and see if it even makes sense to pursue prior to asking about owner financing or carry back. Find out what the owner & tenants are each paying for: Trash, water, sewer, bugs, utilities, maintenance (age of roof's & ac's) etc.
Hope that helps.
Did you pursue this deal any further? I never came across this deal, but was it here in Fremont? I'd love to hear more about it.
If you want, you can look me up on Facebook and message me here or there!
How did it go?
Sorry guys, I haven't been too active for some time now. I never did pursue this deal.. it was just a hypothetical scenario. I come across these types of deals here and there and they always intrigue me.
Personally, being new to investing, I do not think I am ready to take on such a task as of yet. I think moving slowly is the best for me now.
go ham or go home, nothing ventured nothing gained
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing