Need Help With Owner Finance Terms
Good morning BP.
I have a question on how to structure a owner finance deal. My companies strategy is to BRRRR multi family units so that we can pull our capital out of the properties within 6 months after we rehab and refinance them. It is important for us to pull our money out so we can achieve our goal of the amount of rental units we want to own.
We met with a realtor yesterday who said she knew an investor trying to unload his portfolio. There were 2 units that the RE agent wanted us to look at from this seller. The units were turnkey per say so I told her the only way we could buy them is if the seller would owner finance them so that we weren't tying up a lot of capital. The RE agent said that the seller might be interested in a owner finance deal.
We looked at both properties yesterday and we want to wrap them both up and get them under contract. Here are the terms I offered:
20% carryback financing @ 5% interest, interest only payments, with a balloon payment after 5 years. Also an option to extend the owner financing after the 5 years if mutually agreed to. I've read a few books on owner financing, but don't have a lot of experience doing it so I was sort of shooting from the hip when I offered the terms. I'm not sure how much equity the seller has in the property, but I did offer that we would be willing to allow more owner financing in the deal if it allowed.
I would appreciate any feedback on the terms I offered or any suggestions on how to structure the deal. Also, what happens if I refinance early? Is there a penalty if I pay the seller off early? I am assuming I would have my title company/attorney draw up all the paperwork and record the promissory note. Do I do a land contract or get a mortgage/deed of trust?
I am very new at owner finance and how to negotiate the deal so I would appreciate any insight. I can provide more details if necessary
Thanks in advance!