Bucks County, PA · Member since 2017 · 23 posts · 4 votes
Hi Everyone,
How would I capture seller financing in the BP rental property calculator? What are the typical terms (i.e. % down, interest rate, closing costs, are points usually paid)? I'm trying to figure out how I would calculate numbers reflecting seller financing in order to figure out how it could work.
For example, I financed a rental I owned outright and just went with simplicity: 15 year fixed, 5 %, 10 % down. Been working fine ever since. Good buyer, solid property.
And, of course, much may depend on your credit, the buyer's expectations and needs, down payment, the property, etc.
I see some seller financing deals at shorter terms with balloons (maybe 10 year with longer am, but 10 year balloon, i.e., more like commercial). Keep in mind that is just their proposal or first offer....
But it really depends on what you can negotiate--that is the beauty (or horror) of seller financing. You could get something that works well for you--or not so much. And keep in mind it can get more complex if there are other loans or liens (see more on that elsewhere on BP, assumption, wraps, etc). My example is mostly for a seller owning outright financing the debt.
I would, of course, offer something (in terms of an interest rate) ahead of govt bonds as the seller may be thinking of comparable fixed rate investments. But if I was a creditworthy buyer, I would not be offering the sky high double figure rates.
Also, is the property distressed (i.e., not much traditional financing available)? Then the ball may be in your court to tailor a better deal as they will have to finance it or get a cash buyer.
Of course, I preferred closing with a title company (to get all standard documents and proper recording, and their lawyer drew up the note-which had the key terms). We just split costs customarily. So in that way it was not that different a transaction--but lower costs that a traditional closing (no appraisal as I was the bank and got market).
I really like the philosophy and wisdom of Jay P. Decima on seeing these owner finance deals as a blank slate where you craft a deal that works for you (on the numbers) and for the seller and what they want or need.
Just as examples (on the more creative end of the spectrum) he cites using a vehicle the seller may want for the down payment or even later buying back his own debt at a discount from the seller or their heirs/assigns. And more...
So I would run the calculator on what you might actually offer or what, in working with the seller, you discover they may want out of a given transaction (in price, terms, etc) .