Am I crazy for asking this?

12 Replies

I just signed a purchase agreement yesterday, $305k. The seller is financing the deal until I sell my other home. We are hashing out interest rate and terms. I am interested in an amortized 30 year term with a 5 year balloon. Seller has offered this at a 5% rate all the way down to 4.5% depending on how much cash we put down.

Here's the crazy  questions/statements......I want to pay LESS interest. I'm feeling under education in this arena and wondered if someone may have a great negotiating strategy. 

My goal is to try to pay this loan in full within the 5-10 years, depending on what my current home sells for however, I need the protection of a 30 year term payment just in case. What can I present to the seller today to sway her to consider lower or zero interest? She is open to negotiations. 

The seller would be stuck with imputed interest if you wildly successful in negotiating the rate down to zero percent. That means that if she collected nothing from you, she is stuck with paying taxes on interest income she never collected from you. See: Imputed interest

I don't know if she'll go for it if she checks with a CPA. At 3%, the current rate I believe, she would have to declare about $9,000 in interest income she never received. Would you go for a deal like that.

@Kim Durst

Not crazy, no.  I know of a couple anecdotes with folks offering seller financing - enough to say that these are often very unique situations.  One was us - we offered it once, and another is a friend selling a ~50 unit apartment complex.  In general, the reasons for a seller offering seller financing I think are unique, and that means that the negotiations I think leave a decent amount to explore.  

All that said, most investors have other options for their money where they consider their cost of capital higher than what typical market interest rates are.  The big however here though is that in most cases the investor or owner, owns a non liquid asset and you as the buyer in a sense are the scarce resource, for whatever reason.

Doesn't hurt to ask.  Be creative.

I love your ambition!

If you plan to pay it off quickly, and if I understand your strategy- it's to get a zero interest loan from the seller with a balloon, but pay it off completely before the balloon is due?

If that's the case, I'd offer a larger down payment and higher monthly payments. If they need/want the balloon, it's likely that they want an early payoff too, correct? They'd probably be pretty excited by higher payments, and you sound like you are in a position to do that. At a 30 year am, you are looking at payments around $1500? Offer them $3,000 per month with a balloon at 10 years.

If you like the comfort of the lower payment, but have the ability to make a higher payment, you could offer some sort of penalty to yourself if you don't make the higher payment. Let's say your payment with the 30 year am is $1500, but you plan to pay $3000 per month. You could make a $200 "penalty" payment for each month that you have to make a minimum payment. 

Just spitballing here, but there are endless possibilities, this is the fun part. Good luck!

Well, 4.5-5% is certainly reasonable.  You can certainly ask but it seems the seller is doing this just a favor to you, to sell your house....a 5 year balloon doesn’t really jive with “so we can sell our house” though.

@Kim Durst how long do you anticipate it taking to sell your home? If you are now in the process of selling and just looking for short term financing, the interest rate you are trying to negotiate will put, maybe, $100 extra in your pocket. The seller is doing you a favor, take the presented deal, say "thank you for working with me on this", make your payments, sell your house, pay the seller....

usually a seller carry deal your paying top of market or over market .. you don't usually get a great deal on price and get seller financing.. unless its a distress situation.. 

But I have financed many a rental properties to buyers with zero interest I just did one middle of sept.

I run PV and then come up with my return.. so for me 30 months divided by loan amount.. has a PV of a 15% interest rate.  so I start there.. and what I like about these that I do for investors who buy these rentals from me.. is that they NEVER default.. and it forces them to own an asset in 30 months free and clear and they are sending me Christmas wishs as opposed to minimum down maximum leverage and never get a property paid for..

so in my mind if you can hack it.. offer zero interest 10k a month payments.. and then run a PV value to the seller showing how his mortgage can be sold at a 15% yield to a an investor buying a note.

we signed an agreement. 305k $5000 Down, 30 yr amortization with a 5 year balloon. We felt the safest with this option. And yes, they’re being “nice”. Better than fair price on this property. I think it worked very well for us all in this circumstance