Seller Financing pros vs. cons and guidance

4 Replies

My landlord has just notified me she is considering selling the property I rent from her. I would like to approach the subject of seller financing with her as a possibility of buying the property but I am not sure of how to go about this.

The property is located in Sonoma County, after the fall fires we have a severe lack of inventory and houses are flying off the market far over asking price. What can I do to sweeten the idea of owner financing. This is a property that she inherited from her parents with no loan owed on it. Also, it has a total of 3 units on it. 1 primary house that I live in, and 2 others that had previously been garages and converted to 1 bedrooms many years ago and have also been rented out. I have lived here for going on 3 years and have a good relationship with the owner. I am not ready to take a home loan. I work full time but pay is inconsistent because I am also a Realtor so some weeks my full time job as a paralegal is not always 40+ hours a week, due to needing to focus on my Real Estate work. 

Can anyone please give me some advice and also some guidance on approaching this situation?

Good job on finding your first off market property! The first thing I would suggest is finding out what she wants. Why is she selling? Does she want a large sum of money now or does she want consistent cash flow coming in like she is used to? I would offer her a good offer and make it very fair. If you try and lowball, she will not go for the idea, maybe even overpay if she is willing to do owner financing. You are in a perfect situation and good on you for looking into it! You sound like a very hard worker and like you have an amazing relationship so I am sure you can make this work. First just find out why she is selling and what she wants and go from there. When she sells she will be taxed and probably put the money in the bank at maybe a 1% interest. You can offer her a great offer and give her interest of let's say 7%. Write these numbers out and show her an example of the difference in cash flow and money she gets over time. This is a win win situation so show that you are wanting what's best for her and are helping both of ya'll get what you want. Good luck you found a golden opportunity and I'm sure you can make it work!

I agree with writing a good offer but 7% interest is a bit much especially for a property in Sonoma County which if fully financed would most likely have minimal cash flow.  I think the best strategy would be to give her options such as.

1. I can buy it reducing various selling expenses commissions etc.

2. I can list it at X price for X commission.

3. I can buy it with owner financing you get $X per month for X number of years and the rest is paid off at that time.  

She will most likely not want to give you a 30 year owner financing term.

You are a Realtor, use your Realtor thinking cap! You know how to figure out what the market price of a property is based on comps, right? Then figure out what the market terms are for owner financing. If you search on your MLS and check the owner financing options, you can oftentimes see what terms are most common for listed and sold properties. In my area, if I check that box, only a few listings pop up, but most of them say in the agent-only portion that the seller "will accept 30% down at 10% interest" or something like that.

Approach the seller with this data.  It only takes 10 minutes for you, and you can tell the seller "Based on my hours of  super extensive research, I've noticed that owner financing in this area tends to be 30% down at 10% interest for 15 year terms.  Would you take 30% at 10% interest, but with a 20 year term?" and go from there.

Also, here is a pro tip from an attorney's standpoint that I've seen from my clients that have done stuff like this.  They tell the seller they already have real estate attorney that will draft and file the loan documents (which in CA is a promissory note and deed of trust) for a small flat fee of X amount.  I know buyers that use this as a negotiation tool for a seller financing purchase because the seller knows they won't have to deal with finding a lawyer themselves, and it's basically a done deal once they sign the necessary loan paperwork.

Generally speaking, this is part of the practice of real estate: make the seller think you have done this a million times already and you have the people and paperwork in place to get everything done inexpensively and easily.  Make them think they don't have to do sh*t except sign over their property to you for a nice profit.

@Michael Guzik @Aaron K. @Max Gradowitz Thank you guys for the input! I laid out some numbers and options. I took all emotion out of it and used facts, broke down the numbers, unfortunately we could not make it happen. She was in a rush and wanted the full amount now.  I am happy that she gave me the opportunity to present the offer to her, I took my first step towards my goal of property investing and that was approaching and presenting an offer. However, I believe she knew from the start what she wanted and would not settle for anything outside of that.

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