Has anyone done a BRRRR with seller financing? Was it a success for both sides? What were the pros and cons? I was thinking that this could benefit both parties in ways of, on my end I could save money with not having to pay points or a higher interest rate to a hard money lender and maybe have a lower monthly payment and then for the owner, he could drag out what he pays on capital gains and ultimately pay less in capital gains tax because as it sits right now, he would make around $190k from the sell of the three plex. The three plex needs about $80k in rehab.

Another question I had on top of that was, I have a townhome that I am selling currently and need to do a 1031 exchange. My question is, would the IRS see it as a successful exchange if I put what I make from the townhome towards my down payment to the owner?

@Melissa Harris , Getting a seller to carry the financing can be a great way to maximize your savings and leverage.  There are a lot of tired owners at the end of their investing career who don't want to keep 1031ing to continue their tax deferral.  Selling with owner financing can spread out their tax over time which is an advantage to them.

For you on your side it's perfectly fine to 1031 into a property where the owner is carrying the financing.  The IRS does not care where you are obtaining your financing.  As long as your purchase is at least as much as your net sale.  And as long as you use all of your proceeds in the purchase you'll defer all tax.

Originally posted by @Melissa Harris :

Has anyone done a BRRRR with seller financing? Was it a success for both sides? What were the pros and cons? I was thinking that this could benefit both parties in ways of, on my end I could save money with not having to pay points or a higher interest rate to a hard money lender and maybe have a lower monthly payment and then for the owner, he could drag out what he pays on capital gains and ultimately pay less in capital gains tax because as it sits right now, he would make around $190k from the sell of the three plex. The three plex needs about $80k in rehab.

Another question I had on top of that was, I have a townhome that I am selling currently and need to do a 1031 exchange. My question is, would the IRS see it as a successful exchange if I put what I make from the townhome towards my down payment to the owner?

Yes, proper seller financing where you own it is an outstanding way to purchase, especially if work is needed. 

I usually give a 10% DP on a 24 yr term. I also use a local community bank to service the contract. They'll handle the payments, amort sch and interest reporting. I found mine in the yellow pages back in the day.  

@Dave Foster this is exactly what I was looking for as far as input goes! This helps a ton on talking to the owner and seeing if this is an option for him :) 

@Steve Vaughan good to know the terms you usually do. Can I ask what interest rate you usually pay? Or what is pretty typical with seller carry?

@Steve Vaughan do you pay the bank anything to service the contract? How did you approach the local bank to do this for you? Do you plan on refinancing to pull your money out and pay the seller back?

Originally posted by @Melissa Harris :

@Steve Vaughan do you pay the bank anything to service the contract? How did you approach the local bank to do this for you? Do you plan on refinancing to pull your money out and pay the seller back?

I generally pay 6%. I have references to other sellers they can have if they want them. A lot of mine were when a good mortgage rate was 6.5% or so.  5% would be an excellent rate for you today I would think. 

The bank offers contract servicing as stated in the yellow pages so no real 'approach' needed other than to call to establish a new contract.  $150 set-up if they hold original docs plus $10 per month.  I pay set-up and split monthly with the seller.   The title co and bank work together at closing.

I think there are online contract services as well but have found the sellers like a local bank they trust if available.  

@Steve Vaughan awesome! I didn't know anything about the contract service option, so thank you very much for sharing that information with me!