Typical Seller/Owner Financing Terms

2 Replies

My partner and I are looking at a few small (2-4 units each) off-market multi-family deals. The current owner(s) have expressed interest in doing seller financing which is fine by us. With that said, what are the typical terms (i.e. length of note, down payment % - if any, interest rate) for these size deals? I know this is dependent on the current owner(s) personal financing goals but there has to be some normalized trends in this space. Also, if it helps, the deals are in the STL area.

Great question, but there is no such things as typical in the world of creative finance. The agreement that you craft will be unique. It can include a down payment but it doesn't have to include one. I almost never offer a down payment. I sometimes have to give one because the seller wont budge, but I sure as heck wont offer it first.

The payment terms are up to you. You need to focus on making an offer that gives you sufficient cash flow at a minimum.  Focus on that detail. Your monthly payment has to be a number that will cash flow.   

As for interest and length, again this is totally flexible.  I almost always make an offer at zero interest.  I do this by simply dividing the agreed upon purchase price by the amount of my cash flowing payment, and see how many months that is. The seller might speak up and ask for interest, if he does, we will negotiate that.  I will typically look at bank interest rates, and offer that amount.  The seller might also ask for a balloon. That is another negotiation. I want as long as possible, but I wont kill a good deal over a balloon payment. The consideration that I have here is that the balloon has to give me enough seasoning time to be able to REFI out. 

Just to get your brain juices working, there are a bunch of other things you can do with creative offers.  You can give the seller something instead of cash as a down payment.  If he likes to fish, and you find out that he wants to use the down payment money to buy a boat, you can offer him a used fishing boat and get credit for that as a down payment.  This gets sexy when you buy a boat for 15k and get 25k credit towards your purchase.  what you paid for the boat is none of his business.  

You can also delay payments if the property needs work.  Say, you ask for a 6 month delay until the first payment is due, while you upgrade the property    An owner in distress will agree to that offer. 

The only limitation on a creative finance offer is your creativity.  

Start by asking the owner, "what is the least you can accept per month, if I agree to pay your asking price?  Then follow up with, what is the lowest price you will accept?  and go forward from there. 

@Adam Flaugher really good question. Seller financing can be great for multiple reasons, and everything is negotiable. I typically ask for 5 yrs at 5% interest, interest only payments with a balloon at the end. Try to negotiate a small down and as mentioned above ask for deferred payments for 6-12 months.