Seller Financing - how to structure a deal?

9 Replies

Hello BP,

can you someone provide an example for how they would go about structuring a seller financing deal on a free & clear property?  

@Nick Mazzarese

 I like interest only payments and atleast a 3-5 year term.  I have some of my offer letters saved in the BP fileplace if that can be any help.


@Frank R.

why do you do interest only payments?   after the 3-5 year term do you have a balloon payment where you pay off your debt to the seller?  

@Nick Mazzarese

I like interest only payments because it is a write off for me.  Not to say I don't like paying principle.  You will have a ballon after the 3-5 year term.  Have a strategy going into the deal.  Look at cashflow, equity and exit.


@Frank R.

appreciate the info Frank.  what is the reason you started into seller financing int he first place?  was it because debt to income ration was too high and the bank wouldn't give out further loans......

also, how are the interest only payments a write-off?  how does that work?

thanks again for your input.  This is a new subject to me do doing my best to wrap my head around this whole seller financing strategy.

@Nick Mazzarese

 My first seller carry property I feel into just from talking to the owner and they asked me if I was interested.  Then I didn't really know much about seller financing.  At that time I had about 14 loans, 4 traditional and about 10 portfolio loans.  When you accumulate that many loans, most lenders, not all, don't really understand what your doing, things get more complicated.  You have to become a better sales person, selling to lenders your goals and what you want to accomplish.  Adding seller carry properties to your portfolio is like another piece to the puzzle your trying to create.  Seller carry properties give you more flexibility and opens up different ways to negotiate the terms.  There is more emotions involved with financing properties with a seller, don't get into bed for the wrong reason or with the wrong person.


Find an RMLO to qualify your buyer and make sure you stay within the DF laws, close at a title company and make sure to get lender and buyer title insurance, use a loan servicing company to collect payments, pay escrow accounts, etc. Get your SF team together and it will keep you out of jail.

Originally posted by @Frank Romine :

@Nick Mazzarese

I like interest only payments because it is a write off for me.  Not to say I don't like paying principle.  You will have a ballon after the 3-5 year term.  Have a strategy going into the deal.  Look at cashflow, equity and exit.


Not sure I understand you - what has equity got to do with a deal if you're only interested in  an interest only note? You have zero equity the moment you start, and zero equity when you get to the balloon payment.

You are simply delaying the day of reckoning when you have to buy the property for a short term gain in cash flow and tax loss.

@James DeRoest

New Equity can easily be created from buying property at discount, raising rents and making improvements.

Principle payments is taking your cash and paying down debt.  Which is good and smart, just doesnt create new equity.


Equity is not created by buying at a "discount",  market value is what it is and you report that value until the following year talking to a lender.

Nick, is this for you to buy an investment property or to live in? If you are to live in it, interest only loans are predatory, so are any short balloon requirements.

Investment properties may be seen as commercial loans, not everywhere, but a commercial note can be interest only with a balloon in a few years. If it is commercial and all you will be doing is renting it out, then selling it, interest only might work. Make sure the property is in good condition and marketable.

Keeping a property and refinancing an interest only note in three or five years can backfire as you probably can't get rents high enough in that period to force appreciation at 125% of your purchase price, roughly as your future loan will require 25% +/- of equity to refinance it.

Do not over pay for a property to obtain seller financing, financing doesn't add value to the property and that puts you further behind in trying to obtain equity to refinance.

Good luck :)

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