Hello BP Geniuses,
I am in the process of buying 2 apartment buildings from the same owner in Eastern Canada. This is my first multi-family purchase and each building has 12 units. My wife and I can get the financing from the bank for one but getting financing for both looks to be a stretch.
I want to propose seller financing to the owner for the 2nd building, if they agree I have no idea what to do next. I'm sure we would need a contract with the mortgage terms but what else? What is this process like?
Any help would be very much appreciated.
@Brad Patterson if the seller accepts your offer, most of it the process will be similar to the first with the exception that you'll need to spend more time on the details relating to the mortgage financing which can get a little technical for a blog but put simply...
Firstly, on top of all of your regular due diligence with buying property, you'll need to decide if you're going to get a bank/finance company involved or is it solely going to be the seller providing all the financing.
If you include the bank, you'll probably want to check with them in advance to see if they're ok with having the seller's mortgage behind them as they take rates and payments on the second mortgage into consideration for their approval.
Once you and the seller both agree to terms, best to get lawyers involved who can draft up documents. As most of the basic details have already been agreed upon, the rest of the documents merely relate addressing "what if's". Either the seller's lawyer or your lawyer can do this while the other just reviews the terms. Most lawyers who have commercial backgrounds will know what to put in such a document. However if you want to add an extra lawyer of experience in the process you might just get a commercial mortgage broker to help arrange everything for you. It's probably safe to say that every extra layer will add to the costs but each layer will allow you to sleep better a night.
After that, the seller's mortgage is merely another set of documents that you would sign as part of the conveyancing process. Very similar to the first multifamily building. Of course I've skimmed over all of the micro-steps relating to the above but from a birds eye view, this is it.
Keep in mind many people aren't acquainted with seller financing so there may be some further conversation needed in terms of communicating your offer.
@Brad Patterson Get a real estate attorney who handles closings and title work. They can give you advice and handle everything for you. I'm impressed that you are buying 24 units with very little knowledge. I seriously don't mean that in a negative way at all. Just shows you don't have to know everything and read every book to take action! That being said, might wanna learn a thing or two about managing those units and executing a business plan, or having one for that matter. Best of luck to you!
Hi George, Thanks for your detailed reply it was very insightful. I decided to just buy the one 12 unit apartment building for now. Trying to to get both at the same time was a little too ambitious for my first rental property. After going through the commercial mortgage process with few banks and mortgage brokers I'm more inclined to do seller financing in the future.
@Brad Patterson I want to give you some food for thought. My experience is US-based so yo'd have to verify whether the same applies in Canada. It's a lot harder to get a loan with a seller-financing in place. Since it is out of the way for you now, talk to your local banks and see what the pre-requisites are to make it work.
If you do decide to buy more than one property, you should consider connecting with portfolio lenders. This option may allow you to buy multiple properties at once.