Buying 4plex via owner carry financing

4 Replies

Hello,

I wanted to reach out as I have never done an owner financing buy before. I have bought and managed several multi-family properties in WA however they have all been through conventional financing. The owner owns the 4plex 100% outright, the rents are under market and the property is in rough condition. Already the seller is willing to drop the price by 20k for plumbing and electrical repairs.

My question is how should I structure the deal so as both parties are mutually happy and mutually protected from variables etc. Some of my concerns are; not being able to refinance within the period given/agreed upon what length should I ask for? 1,2,5yrs? Also attempting to keep initial up front cash for the deal low. 

Any advise such as interest rate, how the monthly payments to owner during carry period should be allocated etc will be very appreciated.

Sincerely

Trusten Brown

You start by structuring a deal that works for you. This is an investment for you. Make sure the numbers work for you. Then approach the Seller and see if you can get an even better deal.

Example: seller had six units that were worth around $500,000. I crunched the numbers and could only make it work for me if I bought it for $400,000. I also only had 10% to put down. That's what I offered, thinking the owner would reject such a low price. Truth is, he had owned them for 30 years and was surprised to hear what I was willing to pay! On top of that, he knew the tax implications if he sold it outright and preferred the idea of monthly payments. 

The point is, I structured my offer on what worked for me and then tried to figure out how to make that also work for the owner. You'll be amazed what sellers are willing to accept when they are tired of dealing with the property.

Originally posted by @TRUSTEN BROWN :

Hello,

I wanted to reach out as I have never done an owner financing buy before. I have bought and managed several multi-family properties in WA however they have all been through conventional financing. The owner owns the 4plex 100% outright, the rents are under market and the property is in rough condition. Already the seller is willing to drop the price by 20k for plumbing and electrical repairs.

My question is how should I structure the deal so as both parties are mutually happy and mutually protected from variables etc. Some of my concerns are; not being able to refinance within the period given/agreed upon what length should I ask for? 1,2,5yrs? Also attempting to keep initial up front cash for the deal low. 

Any advise such as interest rate, how the monthly payments to owner during carry period should be allocated etc will be very appreciated.

Sincerely

Trusten Brown

In WA, I buy SF with a Note and Deed of Trust, sell with a Real Estate Contract. Learn the difference.

I generally buy with 10% down at 5-6% and have a local bank service the contract. They do the payments electronically, hold the docs, do amortization and annual interest reporting. Your title co may have a recommendation.

thank you Steve Vaugh, I do know the difference I like the hyperlink to the glossary you provided very handy. I appreciate the information regarding the owner carry interest being at 5-6% interest if I understand correctly.

Alan,

I feel you are absolutely right about 10 years, I was thinking 5 but extra time with no penalty never hurts. 

thank you everyone for such great help and insight. Its very appreciated