My husband (Nathan), and I (Erin), are 26 years old and have been aggressively looking/making offers to find our first deal. Over the past 2 years we have read books, listened to podcasts, and met with seasoned real estate investors to increased our knowledge in this pursuit. Our realtor recently showed us an 8 unit town-home style building. The owner is 75 years old and would be interested in owner financing. Our realtor mentioned structuring the deal where the seller would sell us one of the town-homes separately and we would use an FHA loan from our bank plus an additional 20k or so to cover the 20-25% down payment on the 8 units. The realtor said that the seller would potentially like a 3-5 year balloon payment (due to the age of the sellers) and at that point, I guess we would go to the bank to get a conventional loan?
How is owner financing typically structured? What are typical interest rates with owner financing? What should we be aware of/ask questions about with this type of deal structure? How would we go about getting a loan from the bank for the when the balloon payment occurs?
Also, this unit is in the 100 year flood zone which makes us a little weary. We were told we would have to have flood insurance. Should we be concerned about having our first deal/8 unit in a 100 year flood zone?
Erin and Nathan
@Nathan Shepherd That is an interesting arrangement but I would double check to make sure that is compliant under Dodd Frank. It seems like it would make sense but if you already purchased one of the units outright how would they put a lien on it, or is this two separate transactions contingent on the other.
Thanks for responding . I think the transactions would be contingent on each other. I will look into what you mentioned about Dodd Frank. Our realtor mentioned that if the sellers parceled off one of the units for us, the bank would be the first position on the deed of trust and the seller would be the second position, but that this would not be of any benefit for them/not something they would be interested in. the owners are also concerned that if there was a foreclosure that they would be left with the 7 units which to them would be hard to sell and makes them weary. Any advice on how to handle this or somehow put together creative financing would be helpful.
On my first deal we simply had the seller carry back the down payment on 2 duplexes. We structured it at 5% over 10 years with a $15,000 balloon due at 5 years which then re amortized the loan. The seller did receive a second position lien on both properties. You'll likely have to come up with some of the down payment depending on the lender but you may find the bank will let you get away with 10% or so if the seller carries the additional required down payment.
This is really informative! Thanks for sharing how you structured your deal. It definitely sheds insight on different options on how to put the deal together.
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