The up front question is, why would I not want seller financing if I can get it? I'm currently looking to grow my portfolio of single fam and small multi fam rentals and have been offered something similar to this several times. If I can get a property below market value (instant equity) and it cash flows every month with seller financing, what are the down sides / risks with taking as many of these as I can find? Kinda like buying every property in monopoly that you land on!
Property ARV - $185k
Repairs (upgrades to get rent ready) - $5k
Sale price - $150k
Only 5% down at 5% with a balloon due in 5 years
Cash flows $500 per month after all expenses
Why would I not do this deal as many times as possible? What are the risks?
You are counting on the seller continuing to make the payments. you might make them , but if they do not. you have been hoodwinked! as they say!
you loose everything invested. assuming they have a mortgage on the property.
it's an excellent way to use other peoples money strategy's as long as everyone does there part.
If I ever run out of portfolio lending options, mortgage options, and hard money options. I will start looking at owner finance options.
We offer them now to our renters. But then again I am ethical. We service loans first, and reinvest what is left.
@Ken Holifield seller financing can be a blessing and/or a curse. Often sellers will lure you in with seller financing on a property that can't qualify for a loan because it may have some serious construction problem, or it may simply be over priced. There may be financial cover-ups, leases with irregularities etc. Or the seller may be delaying some capital gain-so that's no loss to you. Just do your due diligence, docs, property and price; if it still checks out then SF us a bonus. OPM is never free.
I would agree with the above sentiment that OPM is never free. Your value is there but you may want to explore a purchase money lease, or a land contract with this individual. Have a discussion with them about their goals, and see whats in it for them.
I should have prefaced this by saying, also consider all due diligence done properly and there are no red flags. With that said, are there any risks I’m not thinking of? The deal example above is just one of several I’ve had recently. My thought process is to take them all (if numbers work and due diligence checks out). Am I wrong?
I would take every seller-financed deal I could get my hands on, as long as the numbers make sense! I think it's also a good idea these days to have cash reserves set aside and a plan B just in case things hit the fan and you have to get another loan on the property for whatever reason. Better safe than sorry. 8)
A lot of good points already mentioned, but one thing I always tell people when buying seller financing is to do your due diligence (especially a title search—which isn’t one people normally think about).
I’m an agent in Tn and just had some buyers want a home that had been recently rehabbed; it looked like a flip and I didn’t think much of it bc it fit their needs. We were all set to close, they had moved in early, and the title search pulls up an old lien on it. Apparently an investor had bought it back when the market crashed via seller financing and that means a title search had never been done. The loan company had since closed, so had the original title company. No one had the paperwork showing payment. We ended up having to wait 4 months to get it into the court system and get it taken care of so the title could be insurable. The seller had no idea and I know it was a nightmare when he just wanted to unload it and downsize his portfolio.
I’m sure that’s not a concern now when you’re trying to grow, but one day when you want to downsize or roll those investments into something else, just food for thought. :)