My wife and I are looking a 9 unit building in PA that cash flows really well and has been rehabbed recently. The market it is in hasn't seen much appreciation but is definitely a heavy renting area. The seller is asking $175k and I'd rather not go down the commercial loan route if I don't have to and wanted to get some feedback on possible structuring a seller financing deal. They are averaging $550 per unit currently and doesn't really need any substantial work. What are your thoughts?
We have one duplex that we bought originally and now another primary residence but we're not versed in the best way to approach this situation. Any help would be appreciated!
Seller financing can be good for several reasons but the owner must be willing to do it and it usually must be paid for. If it is in a decent area and he won't have a problem selling it then it probably won't happen. Plus the interest rates are usually higher for seller finance. Why don't you want a commercial loan? 175k for 9 units at 550/month seems like a really good deal, I can't imagine this sitting on the market very long.
You could do a wrap or an assumption if it is financed now but again, why would the seller do this? There must be more to this story. Other option is to find somebody with cash willing to invest it with you while you manage-private money.
@Dan McCarthy from my limited experience when it comes to seller financing deals, the structure/terms that could be negotiated would greatly depend on the seller's intentions regarding the money he/she would be receiving from the sale.
Do you know why the seller is selling? Age of the individual/s? is there a mortgage on the property or will the seller experience any capital gains taxes?
For example, in my most recent deal which did not end up going through, I knew the seller wanted to sell the property because he was getting older, wanted to retire, move south and travel with his wife. He would be forced to pay capital gains taxes on the sale as well and was the type of person who would rather put money in a CD than invest in the stock market.
From that info, I felt confident/comfortable that he may be open to a 5 or 10-year lease option deal in which I'd pay him 20% down, then a fixed monthly payment for 5 or 10 years with a balloon at the end of that period. And since he wasn't looking to invest the money, he became comfortable with the idea of receiving monthly payments for a term, and we ended up negotiating the financing at less than 3% interest. That being said - the deal unfortunately didn't work out - but my point was that knowing the sellers motivation to buy and intentions regarding the money made from the sale will have a big part in determining your best course of action when negotiating/offering a seller financing deal.
I am looking into the commercial loan but have just started. What are the normal terms that are usually available these days?
@Dan McCarthy we buy and sell a lot and refinance 12 properties a year. Our terms are 20% down at around 5% with 1 point. Now keep in mind rates are rising slightly and some banks will require 25% down. All this will be based on your financial strength and re pore with the bank.
@Alex Deacon Are you guys amortizing over 30 years? I'd love to get into this 9 unit building or something similar.
I am also looking for another property, and heavily looking for owner financing. My bank is offering 20% down, 5.2% interest, 25 year amortization, 7 year balloon. If I can get less down I can buy a bigger property, with most likely better terms (if seller willing of course). And if I want to refinance for cash out, my bank will do it after 6 months of owning.