Seller Finance- what should I ask for?

11 Replies

Hello BP Community!

I'm Carol, I've read many posts from investors to always ask if seller financing is an option, can you provide examples of what to ask for from the seller to finance? Thanks!

hey carol, I frequently go after seller financing whenever possible. it depends on what your comfortable with asking. typically ill offer 6% on a term they are comfortable with. I of course try to get the 30 year amortized. however thats not for most sellers. 

so you could ask for a 15 year amortized for them to carry the entire term or even a offer a 15 or 30 year amortized with some sort of a ballon payment (maybe year 3,5,or 7) and refinance once you have the equity 

hope this helps!

Hi, carol,

 Try to ask for the lowest possible interest rate and the longest term. You will be surprised what sellers say “yes”to when you simply ask. I have several seller loans and private loans at 5.5% and lower.

Good luck 

@Mark Webb and @Rick Stein thank you both for your comments. I agree with you Rick, it doesn't hurt to ask, the worst thing that could happen is the seller would say no. :)

But, they might say “yes”if they say “no”perhaps  they really do not understand why. They may want all cash but don’ t understand capital gains.. Explain they will be getting a monthly check and their loan is collateralized by real property. If they still say No maybe some private lender would say “yes”

@Rick Stein great point rick, the worst they can say is no.. everything in real estate is negotiable 

The worst thing they could say is, "How dare you!! Get the hell out of my house". Ask me how I know.

I talk with the seller for quite a while to see what it is that they actually need out of the situation. Once you find out that they do not need or realize that they are not going to get cash then you can move toward an offer. Personally I try to give information and let the seller give me an offer.

I might tell them that market rates for loans at a bank are 4 to 5% right now. I could call a friend and get 8 to 10%. I ask the seller what they are going to do with the money if they get it all right now. Usually they say that they are going to put it in the bank and probably spend some right now.

I let them know what money market rates and CD rates are and that they could make about 5% right now with me. They usually come back at about 6 to 8%. Anywhere below 8% with a balloon of about 5 years works for me with a 10 to 15 year amortization.

@Rick Pozos I like your scenario example, appreciate the types of questions you ask the seller to help him/her to understand banks don't pay much and making a deal with me, the buyer is better. Thanks!

I recently purchased two duplexes and got owner financing.   Everything I did I learned from Bigger Pockets Podcasts. 

A local realtor that I have a relationship brought me an 'off market deal'.  Exactly what I wanted to purchase, but I was cash poor at the time, and they were asking too much.  I researched the tax records and found out what they had paid for the duplexes 13 years ago.  I got a good amount of information from the realtor about the seller as well.

They were not doing a 1031 exchange, just cashing out because they were older and tired of land lording.  They were asking $225,000.  I wanted to pay $190,000.  (These are 'round numbers')

They paid about $140,000, and had depreciated the property about half way, $70,000, over 13 yrs.

If I paid full asking price they would potentially be on the hook for capital gains tax of around $20,000-25,000.  

I ran an amortization on a $180,000 loan, 20 year, 10% down, 5% interest.  5 year balloon.

The total of the payments and interest was $256,000.  

So I offered $256,000, paid out over 20 years.  And I wrote out how this could potentially save them another $20,000 in capital gains taxes. I advised them to check with their accountant as well.  

They countered and we settled on a purchase price of $190,000, with 10% down and they financed $171,000.  This was a better deal than I could have ever received through a bank.  They win and I win.

Additionally, I set the closing for the 6th of the month, so that I received the prorated rents (about $2,000).  I was also credited for the prorated taxes for the first 10 months (about $3800).  I also received the deposits for the 4 tenants (about $2500).  I now only had to put in about $10,000.  

I am no expert in owner financing, but I have learned that there are some powerful advantages.  Just find out how you can give the seller what they want and at the same time make the deal work for you.

Good Luck!

@David Tiemann love it! Yes I've been watching hours of BP podcasts the best education of real people learning how to become investors.  It sounds like you had a lot help from the relationship of a local realtor. I like your suggestion of closing not on the first of the month but a few days later to collect prorated rents and taxes, brilliant. Something that simple I would not have known about. Thanks for sharing. 

If you both agree on the rate and terms, I suggest you utilize a note company to track your note payments, taxes and insurance.  Running your note payments through a note company will do two things for you.  First,you will have proof via the note company that you made your payments on time for when you need to refinance the seller note.  Secondly, the note company will make sure your payments were applied towards the seller note.

@Karen Schimpf what a great idea to use a note company! Thank you for explaining the benefit as I have no experience working with notes.   

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