😵💫HELP!!😵💫 SELLER financed "agreement for sale/ contract for deed" multi-family
Hi biggerpockets 👋
I'm working with an off Market seller who has five 4-plex's (20 units) in Mesa Arizona.
Him and his wife are selling off all their properties except for a beach front property that they purchased in Madera beach Florida. They are selling everything because they are in their 60s and don't want to be in the rental business anymore and don't want their rental properties anymore and don't want them back and they want to move to their new property in Florida to redevelop it and they said they needed approximately $900,000 in their pocket to renovate their Florida property.
For the five 4-plex's they want to seller finance them. The buildings need interior renovations and the seller has approximately 6 empty units out of 20 and the rents are all below Market so this would be a value add project
Originally, they wanted to seller Finance doing a deed of trust and promissory note but now they want to seller finance doing an "agreement for sale" or "contract for deed"
because they said they are worried about foreclosure. they don't want to go through a Lengthy foreclosure process and they just want to get their properties back easily if i was to default.
They said part of selling to me is though they don't want their properties back and they just want to be done with them
I currently on 10 properties with 45 multi-family units in the Phoenix Arizona Metro Market and I showed them my bank account balance and I've showed them my credit score and that I've never missed a payment on any of my mortgages including the anyone deal that I did sell her financing and I paid back that seller. And the current seller finance deal that I have that I make payments on time every month
I am a licensed realtor here in the Phoenix Metro and I also am helping my 20yr old brother find a 4plex to house hack so he can follow in my footsteps. He's pre-approved with FHA 3.5% down at $600k so a little less than what some of the 4-plex's are selling for in the valley.
The seller wants $720k for all 5 buildings but he agreed to sell one 4-plex to my brother for $600k but the $120,000 difference will be tacked on to my seller financed loan amount
Here's the seller financed purchase price when i buy the 4 buildings and my brother Purchases 1 building with FHA. The seller is not paying any commissions or any concessions
Purchase price: $3,000,000 (4 buildings at $750k per)
Down payment: 10% = $300,000
Loan amount: = 2,700,000
Interest rate: 5.5% interest only
monthly payment: $12,375 (due to sellers every month)
My main question and concern is does anybody have any familiarity with doing
An "agreement for sale" or "contract for deed" that they can shed light on ?
I have done two seller financed deals where we just did a deed of trust and promissory note and I have some other properties that I just purchased out right using conventional loans, DSCR loans, VA and FHA for my house hacks
What are the pros and cons as a seller wanting to sell as an agreement for sale?
And what are the pros and cons as a buyer wanting to buy as an agreement for sale?
How would this affect me remodeling the properties, getting a HELOC or doing a Cash out refinance later? From what I was reading it says I wouldn't actually own the property.
would you personally want to do an agreement for sale? Or Would you just explain better how a deed of trust and promissory note work?
Thank you so much to everybody for your help! I appreciate any wisdom or guidance that you can share
Johnny,
The difference between a DOT and contract for deed is that with a DOT you take title to the property and with a contract for deed you don't, it's that simple. A contract for deed benefits the seller a thousand times over but adds that much more risk to the buyer's down payment. A DOT is recorded and that's your security. In a contract for deed you could record the contract, but it doesn't secure your down payment the way a DOT and title to the property would. As a buyer I would never go into a contract for deed situation. Those are usually done on land deals and some sellers that talk buyers into it with buyers that don't have as much experience. Borderline predatory in my humble opinion. I would definitely stick to my guns on this one and demand seller finance or walk away. Just my two cents for whatever it's worth.
Quote from @Chris Potter:
Johnny,
The difference between a DOT and contract for deed is that with a DOT you take title to the property and with a contract for deed you don't, it's that simple. A contract for deed benefits the seller a thousand times over but adds that much more risk to the buyer's down payment. A DOT is recorded and that's your security. In a contract for deed you could record the contract, but it doesn't secure your down payment the way a DOT and title to the property would. As a buyer I would never go into a contract for deed situation. Those are usually done on land deals and some sellers that talk buyers into it with buyers that don't have as much experience. Borderline predatory in my humble opinion. I would definitely stick to my guns on this one and demand seller finance or walk away. Just my two cents for whatever it's worth.
Thxs Chris for the help!! there definitely sounds like there are risks to an "agreement for sale" or "contract for deed"
so even if this deal is an "agreement for sale" and "contract for deed" the seller would still have to go through the foreclosure process if was to default?
I have the liquid cash and the balance sheet to successful own this deal and will not default but seller is concerned just in case and thinks "contract for deed" is easier to foreclose vs "Deed of Trust/promissory note". and I would like to be able to explain and share why DOT is best for both parties. my attorney said DOT could take up to 180 days to foreclose but may even be 30 days if the loan is interest only
since i wouldn't actually own the property would the seller have to still take care of the property taxes and the property insurance?
and can the seller still take out new debt against the property?
what do you think of this scenario as a last resort if the seller doesn't budge on the DOT and promissory note?
go through with the "agreement for sale" renovate all the units and exterior of the buildings to increase income and lower the expense which will increase the NOI (NET operating income) and then go to my mortgage broker to execute a cash out refinance to pay off the seller off to become the actual owner and to get the deeds
thank you so much for helping, Chris!!
Quote from @Johnny McKeon:what do you think of this scenario as a last resort if the seller doesn't budge on the DOT and promissory note?
go through with the "agreement for sale" renovate all the units and exterior of the buildings to increase income and lower the expense which will increase the NOI (NET operating income) and then go to my mortgage broker to execute a cash out refinance to pay off the seller off to become the actual owner and to get the deeds
thank you so much for helping, Chris!!
@Johnny McKeon you've nailed it.
BTW I do Agreement for Sale all the time. Not all of them are created equal, so it's important to get all the right terms and conditions in them. They're very safe if/when you record them in the public records (just like a deed and a deed of trust). They're kind of a super-doc because they grant you beneficial use of the property, establish the price and terms, and your rights and responsibilities... all in one document.
Did you get this nailed down? I'd love to help. Hit me up.