seller financing offer
So the people we bought our first property from last month own 5 other properties. They hinted to us at closing that they would be interested in possibly doing a seller financing deal on at least one more property. I have read some about seller financing but i dont really know how it works.
Say we were to take a two year seller financing option...that means in two years we would have to come up with money from a bank loan to refinance and pay off the balance with the sellers. Do we need to have 20% down to refinance a seller financing deal? I dont even know what other questions i have. Any advice would be appreciated.
thank you!
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#5 Guru, Book, & Course Reviews Contributor
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Without knowing the details, it is hard to advise here.
It does not need to be 2 years.
Investor to Investor there is no Dodd Frank (you are not Owner Occupant, you are not renting)
It is important to buy equity not just cash flow.
It is important to get a relationship with a portfolio lender that lends on 80% of appraisal and not 80% of purchase price.
Just because you can buy Owner Finance, does not mean you should over pay.
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#3 Guru, Book, & Course Reviews Contributor
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Most likely, you'll need 25% equity in a non-owner occupied property in your area.
Might pull equity from another property, might get a blanket mortgage with other properties, but 2 years is too short to build equity unless there is a rehab involved. SF deals should be 3 to 5 years to a commercial refinance and longer is better.
Might consider a higher interest rate (up to 10% in Mo. on seller financing) with a lower price, deduct the interest and your equity will grow in the second year and on depending on the appraisal.
Brian knows I preach "never pay more for seller financing", the seller already benefits in taxes and is a good reason to carry the note further out too.
Be aware, lots of old investors out there that try to finance, put a short balloon payment on it with the intentions of taking it back because you can't get future financing, so watch the equity and marketability of the property. Know what minimum loan limits are from your lender.
Before you get into a SF deal, it's good to talk to your lender and get their opinion of where you'll be if you need to refi! Good luck :)
Great idea about the higher rate and lower purchase price! Hadn't thought of that. We bought our last property from these same sellers and have a good relationship with them.