I've got a deal in progress on a 19 unit apartment building, the seller seems to waffle back and forth between wanting to sell and not but has indicated a desire for owner financing. This is great, in my opinion, because this way we can potentially both get what we want.
However...I've never negotiated a deal like this, and if there is anyone out there who might suggest some key points to consider while going through this process I'd love to learn!
What I know to consider: interest rates (I'm trying to keep them low), "term" the length can vary, purchase price, payment amounts...what else is there that I don't know?
The property cash flows nicely, but the seller operates and manages it all on their own. The desire is to sell the property with seller financing and be able to live off of the income without having to do all the managing work.
I'm thinking I can negotiate a purchase price lower then what is being asked, with a rate that beats the banks, and then have a term that is short enough to where the payments would roughly equal the current cash flow but would of course need to be slightly less. Also, there is room to be able to expand and create additional value and more potential cash flow from the property. I have a full time job that supports me at the moment, so not having gobs of cash coming in from this property isn't going to ruin me, as long as it takes care of itself.
As they say, you don't know what you don't know...
Also...more questions have surfaced since I began writing this...LLCs, should I have one for this transaction?
The current owner has the property belonging to an LLC, and I feel that venturing into commercial properties warrants a bit of "distance"...
Anyways, I've already met a few great contacts in my area (Charlottesville, Crozet, and Wayensboro in Virginia) from BP and it's suer cool to meet like minded people and go after some deals.
Ok, thanks in advance for anyone offering advice!
@Andrew Slater Look for win-win solutions to craft the seller financing transaction. All terms are negotiable and they all correspond to each other. Typically the better the terms the less aggressive you have to be in price, and vice versa.
Shoot me a PM and I’d be happy to chat about what has worked for us in these scenarios.
Awesome advice Neal, I appreciate the feedback and the PM. I'll be in touch today to discuss.
Good morning Andrew,
I'm working on a seller financing deal right now in Charlottesville and Neal is right. Everything is on the table! (which is why I love seller financing) Here is a list of some of the things we negotiated:
- price / who pays closing costs / loan term / interest rate
- interest only vs amortized loan payments
- lease end dates / renewals with all the tenants (this came up because I know one of the tenants is a real problem)
- what needed to be fixed in each apartment before the transfer
- appliances and maintenance equipment (there was a riding mower I had my eye on)
That's all I can think of right now. If anything else comes to mind I'll let you know!
Thanks for the input Deandra!
I like the recurring theme of interest only vs amortized loan payments...once I learn more about that I'm sure we'll put that to use in negotiations.
Thanks again, I'll send you a quick PM!
The type of SF is #1 on my list. If you have the best price and terms in the world it won't mean beans unless you actually own the thing. No Land Contracts or CFDs. Get a note and mortgage and have ownership day one with a warranty deed.
Order up an in depth title search like an O&E or get title insurance always. Good luck!
Hi @Andrew Slater I'm a bit late to this post. How'd the negotiations go?
You found the 'need' so-to-speak where the seller is looking to sell to replace their income without having to manage. I'd start with what they were making before and what they'd need to make to be happy.
Between the down payment, mortgage and interest, you have the opportunity to make the seller more than whole while getting a great deal.
Looks like you're local. I'd love to connect and chat real estate!
@Steve Vaughan , thanks for the tips...title searches are another thing I know nothing about, time for some research!
@Jason Magee , I've been pretty busy and have lost track of social media posts so...it's all good!
The negotiations fell through, the seller waffled around for a week or two as precious time slipped away. By the time she replied and indicated she was willing to sell, I had already written it off as gone, so my response was to request that she consolidate all the information on the property into something electronic that I could then pull together into a convincing report for a lender...however then I indicated that my offer would be at least 200k below her outrageous asking price and of course she promptly backed out again. So, I've moved on to looking for other opportunities while I let her think about my offer...
Thanks for the reply and I'd love to meet up and chat too, at the moment I'm deployed in Guam attached to a ship out here so I won't be back for a few months. But I'll be sure to send you a PM and we can set something up!