Creative Investing: 0% Interest Deals?

Question

Anybody successfully do 0% interest deals?

Example: A 20 unit complex sits on the MLS for a year because it is overpriced at $740k. Offer full price to the seller, but dictate terms. Tell him you'll do a $70k down payment, with $5k/month for 10 years. But he has to do owner financing at 0% interest.

This is a real example given at a REIA meeting I attended last night. I have my doubts that this can work well enough to make a business out of it, but his expensive 3 day seminar will change my life, so it must be real

Rocky V. · Answer

I have one so far but not nearly in that price range. Seller was adamant on price so I offered it at 0% for 12 years. To my surprise he agreed. Working on another really low end deal that I have verbally negotiated on - seller originally wanted $30k, I offered $10K cash but she insisted on more so we settled with her financing $15K with $1K down and payments of $200. Now to see what I am going to do with the property but this gives me multiple exit strategies to work with.

You never know what a seller's motivation is and you will never get 0% if you don't ask.

Andrew Schena · Answer

In Sue's defense, Chris, you never mentioned the $70k balloon note at the end of term.

Christopher Cole · Answer

I wasn't even tempted.  He spent 95% of his presentation trying to convince us to pay for his 1 day seminar, and 5% actually talking about real estate techniques.  I bet on Saturday he spends 95% of the day trying to convince people to pay for his 3 day seminar.

I'd have a lot more respect for the guy if he just talked real estate and let his "technique" sell itself, but the way in which he gave the presentation screamed scam to me.  I figured I could get a better education here on BP without having to work so hard to pull the nuggets from the rest of the presentation.

Account Closed · Answer

What?

Account Closed · Answer

I'm not understanding the math above.  It adds up to $670,000.  Not sure if you meant to do that?  I'm going to assume you meant for it to add up to $740K.

Depending on the situation of the seller, he might go for it.  You'd need a seller who doesn't need the money now, or desire to sell the contract to someone else, because the contract is worthless to sell, unless he just needs to get out of this property and is willing to take a loss.  But, if that was the case, he could just sell it for less now.

So, you'd need that one type of seller, who is ready to get rid of it, and can wait to receive the money piece-meal over 10 years.  Not impossible.

Another option would be to offer more than the asking price, with owner financing of 0%.  That way, he could sell the contract for a profit, potentially.

I have had two good experiences, though, offering full price and dictating terms with owner financing.  Both times I offered low down payments, but a higher than market interest rate.  One countered with a 10 year balloon payment payoff, but otherwise accepted my terms.

Both were sellers who were in bad markets at the time.  I love making a deal.  Just sit down and say, I can do such and such and am willing to do this and thus, can we work something out?  Knowing what the other side needs/wants is the key.  Then try to make your offer close enough to what they want that they'll go for it.

Christopher Cole · Answer

It's just a balloon payment of $70k after 10 years.  If you can't figure out how to get just $70k to keep the apartment complex after 10 years, you must be a lot better at making deals than apartment management :)

Doug W. · Answer

I was at the meeting, too, @Christopher Cole. I have thoughts on this but I keep coming back to wondering what the contract terms are. I bet that if we saw them it would explain a lot. I also wonder who handles repairs, etc. I assume that the buyer does?

My thought for the scenario is that if you are the seller and you don't need the entire sum of money immediately it would be nice to have a steady stream of income over the 8 year period (or whatever was negotiated) without the hassles of being the landlord. Plus you pick up the additional dollars above your asking price over that period of time.

Another question I wonder about from the buyer's perspective is how long does it take and how much does it cost to find the right types of sellers? It can't be cheap in terms of marketing dollars and time spent reaching out, etc.

Clearly I did not attend the follow-up day event. :)

Joel Owens · Answer

Trying that with a seller will not work if they have any smarts to them.

The IRS has an imputed interest provision where the rate for finance at the time of transacting needs to be within IRS rules. If not the seller who is owner financing could be hit with a nasty bill from the IRS. The IRS wants their money whether you collect it or not! lol

http://www.ehow.com/info_8751720_imputed-interest.html

These zero interest rate deals are preying on the fact that the seller will not know about imputed interest and that hopefully even if the buyer is overpaying the market still keeps going up. These are long shot type strategies that can sometimes work. The persons selling this system might promote it working most of the time but I know nothing about them either way positive or negative. I find many systems no matter who it is overpromise and under deliver.

A different strategy might be to have an interest only loan to keep payments low to seller.

Stephen Seaberry · Answer

@Christopher Cole

Thanks for posting this. I was at the Traction REIA last night as well and couldn't wait to get back to BP to question the legitimacy of the technique. Are you planning to attend the seminar tomorrow?

Christopher Cole · Answer

You could say that about pretty much any deal when you're buying a rental. In this case, I'm guessing the $70k immediate gratification and some troublesome tenants have something to do with it.  Or a million other reasons...divorce, retirement, long distance move, etc.

I'm not saying I would do it.  Just playing a bit of devil's advocate.

Creative Investing: 0% Interest Deals?

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