Rental Property Investor · San Diego, CA · Member since 2015 · 42 posts · 10 votes
Hey BP,
I am considering a deal on an 8 unit property in the Seattle area brought to me by a wholesaler. This is my first deal and it seems a bit complicated to me.
The seller wants to do seller financing with the first 7 years interest only payments and one balloon payment in year 5. The wholesaler wants a 3% percent finders fee.
Is 3% an average finders fee for the Seattle area?
Is a seller financed deal complicated enough for me to need to get help from a broker or can I handle this myself?
Are there any gotcha's I should look out for when dealing with seller financed deals?
On larger dollar transactions I engineer, by finder's fee is closer to 1.5%. 3% sounds high to me. It also sounds like a commission!
Be hard to do the last 2 years of your 7 year interest only with a 5-yr balloon. The balloons are fairly common I have found, just not the payments extending past it.
Here in WA, you'll want a Note and Deed of Trust as the buyer. A Real Estate Contract will be easier for the seller to get you off if you default. Those are the 2 main mediums of seller financing here.
What would make you want a property way up in WA @Yohannes Kifle? King county has some crazy landlord-tenant laws you should familiarize yourself with. Good luck!
On larger dollar transactions I engineer, by finder's fee is closer to 1.5%. 3% sounds high to me. It also sounds like a commission!
Be hard to do the last 2 years of your 7 year interest only with a 5-yr balloon. The balloons are fairly common I have found, just not the payments extending past it.
Here in WA, you'll want a Note and Deed of Trust as the buyer. A Real Estate Contract will be easier for the seller to get you off if you default. Those are the 2 main mediums of seller financing here.
What would make you want a property way up in WA @Yohannes Kifle? King county has some crazy landlord-tenant laws you should familiarize yourself with. Good luck!
3% finder fee is equal to one side of a brokerage commission for an on-market commission. Typically seller financing paperwork can be prepared by escrow officers. You can also choose to have an attorney review the documents.
I am a real estate broker and investor based in Seattle - let me know if you have any questions I can help answer as well.
Thanks @Steve Vaughan and @Adrian Chu for the advice. I'll definitely read up on the tenant laws in the area. I'm currently in the San Francisco area where there are truly crazy landlord-tenant laws which is one reason I chose not to invest locally. I'm pretty sure they will use a Note and Deed of Trust because the wholesaler told me that the seller expects me to refinance after the 7 years and from my understanding you can only do that with a Deed of Trust, not a Real Estate Contract. Correct me if I'm wrong though.
I think I'll have a lawyer review the documents to be on the safe side.
Yes, read up on those King County and city of Seattle exceptions @Yohannes Kifle. In the WA LL/tenant law - they have specific mentions -'EXCEPT in (King/Seattle).... where you have to show cause to give a 20-day notice' for example. Inspections, too. No thanks. You have the whole country as your oyster once you decide to invest out of state.
Of course you can refinance a Real Estate Contract. But I thought you only had five years with the balloon? Refinancing at 7 will do you no good. You or the wholesaler or both need to realize that. You do not have a 7-yr deal if you also have a 5-yr balloon!
A Note and DofT is better for you as a buyer as I mentioned before. The financing is only one portion of the deal, of course. Much other DD is needed as I'm sure you know.
Oh sorry @Steve Vaughan. I guess I didn't specify that the balloon payment in the fifth year would only be for 5% of the purchase price, not the full principal. I'm not sure why the seller wants to structure it this way. I was told he wants to retire so I'm guessing maybe this structure benefits him tax wise.
Is there a good resource I can use to read up on seller financing? I guess I still don't really get what a Real Estate Contract is. When I was reading up on seller financing I only read about Land Contracts, Note and Mortgages, and Lease Purchase Agreements. Is "Real Estate Contract" another name for one of these?
A WA RE Contract is similar to a land contract, but the buyer has title while making payments. Hopefully the seller's preferred method is a note and d of t.
Just a quick update if anyone is interested. Another buyer offered to buy the property sight unseen so the wholesaler assigned the contract to that buyer. I think I need more experience before I can buy places sight unseen. Does anyone have any advise on what I could have done differently to get the deal? Or is "sight unseen" the magic words that trumps everything?