seller financing the down payment stratergies on multi family

[Carl Fordyce]

i was listing to a podcast on multi family investing the guest that was being interviewed said that they did seller financing for the down payment on their first multi family property.  im considering the purchase of a 6 units and this caught my attention.  is it possible to do seller financing for the down payment in today's market, and if so considering that the average down payment is 25% down what are some ways that i could structure seller financing for the down payment?

[David Dey]

This strategy works best for hard money financing or private lender financing.

Most institutional financing will require the downpayment be sourced and or seasoned, (in other words, they want the down payment to come from you)

In hard money or private financing, the primary concern of the lender is Loan to value. (LTV)

In cases where the lender doesn't care where the downpayment comes from, seller financing is a phenomenal option.  The more the owner will "take back" in financing, the less out of pocket you'll have to spend.

In my negotiating with the owner, my one two punch regarding this issue, is asked in 2 question.  (I already am going for high equity deals, so let's say the seller owns the property free and clear)

Let's say this is a 4plex that I'm looking to get in the $100k price range:

(I first go for price)

Me: "if I pay cash and close quickly, what is the least you would take for your property?"

Seller: "I don't think I could take any less than $100k for the property."

Me: "Ok, I think I can do that."  "Let me ask you, would you be willing to take any of your purchase price in payments?"

(At this point, they will either say, "yes" "no" or what do you mean?" "I than explain to them about if they take all their payment in cash, how there could be large tax consequences.  But if they take, say 50% in cash and 50% in payments they only get taxed on what they make per year. Plus it gives them money they can use monthly as cashflow)

Notice I didn't say anything about interest?  That's because, if they don't bring it up, neither will I.

What this does is bring us to a wonderful scenario called, "blended interest."

If you have 50% of the the price at 8% (this is the 3rd party financing) and 50% at 0%, (your seller financing) then you have a blended interest rate of 4%.  (Not bad, eh?)

Disclosure:  make sure that your contract makes it clear that the seller financing will be   subordinate to the 3rd party financing.  Not many lenders will go into second position.

Hope this helps.😀

If you have additional questions, feel free to ask.