Seller Financing First Rental

1 Reply

I am Realtor in Boulder, CO. and a friend of mine has a 2 bed condo and 2 bed townhome as rental properties he is looking to off load as he and his family have decided to live in Germany full time. Both properties have been rented consistently for over a decade. I want to start building my own portfolio of rentals and see this as an opportunity to get started. I asked him about selling to me using seller financing and he's open to it. 

So, how do I approach this? Ideally I would like to buy both, but at least getting the lower priced condo would be a great start for me. I have about 15K in savings I can give him up front. The condo is mortgaged at only $500/month and rents at $1600 and I could buy it for $320K. The townhome has a $1600/month mortgage and he rented it recently for $1800 (desperate measure as his long time tenant moved out), I could buy for $420K. Both are in good condition and I actually helped him update the condo just 6 months ago.

Seller financing is pretty much non-existent in my market, so I have no experience with it. I've reached out to my mortgage guy as well and we are going to meet up today. From what I understand, we can basically hash out any arrangement we like, but I want to make sure we have a fair deal for both of us. Anyone here have experience with this and any advice on what to do and what to avoid? Thanks for the help. 

Originally posted by @AJ Johnson :

I am Realtor in Boulder, CO. and a friend of mine has a 2 bed condo and 2 bed townhome as rental properties he is looking to off load as he and his family have decided to live in Germany full time. Both properties have been rented consistently for over a decade. I want to start building my own portfolio of rentals and see this as an opportunity to get started. I asked him about selling to me using seller financing and he's open to it. 

So, how do I approach this? Ideally I would like to buy both, but at least getting the lower priced condo would be a great start for me. I have about 15K in savings I can give him up front. The condo is mortgaged at only $500/month and rents at $1600 and I could buy it for $320K. The townhome has a $1600/month mortgage and he rented it recently for $1800 (desperate measure as his long time tenant moved out), I could buy for $420K. Both are in good condition and I actually helped him update the condo just 6 months ago. 

Seller financing is pretty much non-existent in my market, so I have no experience with it. I've reached out to my mortgage guy as well and we are going to meet up today. From what I understand, we can basically hash out any arrangement we like, but I want to make sure we have a fair deal for both of us. Anyone here have experience with this and any advice on what to do and what to avoid? Thanks for the help. 

First, you can't possibly guess what is "fair" to the seller so don't even try. He presumably is a grown up and knows what he wants. You put together a scenario and offer it. He responds. You work out the difference. My offer would be: "I'll take over the mortgage payments and pay you "x" amount each month and take care of maintenance and repairs, that way you can have cash flow and not have to pay taxes on your gains". And let him respond.

If they are rentals, and he never plans to be in town again, ask him how much equity he needs to be out of the deal entirely. You at least know what he is thinking at that point.