Seller Financing deal - trouble with Amortization Schedule

6 Replies

Hello everyone! New member here - have found many useful tips & strategies on this site, but was never a member prior to today.

I have a question about seller financing calculations regarding a deal that I'm currently working on.

I'll spare you the full details of the deal, but I've essentially been able to get the seller to open up to a possible seller financing deal that would get me a great cash on cash return of near 20% on a good, solid property on the busiest street in town.

Here's where I'm somewhat stuck (and I hope you can follow). The latest offer we're working on is a purchase price of $400,000. $80,000 down payment due to seller. He wants 10 years of monthly payments around $1,650/mo, then a balloon due at year 10 of $180,000. So total of all payments due to seller would be roughly $458,000.

Comparing these terms to the best financing I've found through a bank ($320k loan, 5.5% fixed for 10 years then refinance, amortized over 25), with same purchase price and down payment, results in a lower monthly payment by $315/mo, plus my principal balance after 10 years of payments through bank financing would be $240,000, compared to the $180,000 balloon that the seller wants at year 10.

Given the seller financing details above, I know that an amortization table should show me paying $140,000 principal and roughly $58,000 interest over the 10 years of monthly payments, but how can I calculate the exact amortization schedule with principal/interest breakdown per payment? Guess and check base don various interest rates and amortization period? I'll also post this in the loan section but was hoping someone may have done a deal similar to this in the past and could help! Thank you all!

Down payment: $80k.

1st mortgage: 10 year fixed, $140k, 3% rate. P&I payment is $1352. Will pay off in 10 years.

2nd mortgage: interest only w/ 10 year balloon. $180k. i/o @ 2%. Interest only payment will be $300.

$80k + $140k + $180k = $400k.

$1352 + $300 = $1652

No bank can touch those rates/terms, well done. Even if rates are at 8% in 10 years, payment on the remaining $180k will be $1320, still a drop.

Magic wand:

"Word problems" were always my fav in math class. :)

@Chris Mason Exactly what I was looking for, I really appreciate it!

Hopefully we can get this deal signed and move forward. I've never tried the seller financing route before, but getting to know the seller's motivation to sell, what he plans to do with the money, etc. led me to this point. He'll avoid a capital gains hit and get steady income for his first ten years into retirement (he was going to just stick the lump sum in savings or a CD), so I knew this would be appealing, even at a fairly low rate.

Keeping my fingers crossed. Thanks again!

Originally posted by @Joseph Parker :

@Chris Mason Exactly what I was looking for, I really appreciate it!

Hopefully we can get this deal signed and move forward. I've never tried the seller financing route before, but getting to know the seller's motivation to sell, what he plans to do with the money, etc. led me to this point. He'll avoid a capital gains hit and get steady income for his first ten years into retirement (he was going to just stick the lump sum in savings or a CD), so I knew this would be appealing, even at a fairly low rate.

Keeping my fingers crossed. Thanks again!

 Your seller is going to flip out when they see that they effectively negotiated to lend money at 3% and 2%, that's going to be your real challenge. Good luck.

What you need to figure out is the interest rate and amortization period necessary in order to give you those terms ($320K loan, $180K balloon after 10 years of payments of $1650 a month.  Excel has a function, RATE, which should calculate the interest rate given those terms.  But that function guesses and iterates to do this calculation, and does not converge with those terms.  So, I resorted to just guessing and tweaking.  I built a spreadsheet that calculates payments (excel PMT function) for a range of interest rates and terms and then a second spreadsheet to calculate the balloon after 10 years (excel FV - future value) function.  I then experimented with various ranges of rates and terms to get to one that gives you a payment of about $1650 and a balloon after 10 years of about $180,000.  What I came up with is that your loan is at 2.291% amortized for 242.425 months gives a monthly payment of $1650.18 and a balloon of $179.998.45.  Hopefully that's close enough.  Knowing those terms ($320K loan, 2.291%, 242.425 month amortization period) you can now calculate a full amortization table.

@Chris Mason Wanted to update you on this deal. I think I failed to mention this is for a 5-unit commercial office/retail space, so not residential (which doesn't matter regarding what I was asking help with). You may have realized that it was commercial when I detailed the best bank financing I've found.

Anyway, the seller came back with a counter, agreeing to all details except wanting $1,800/mo versus the $1,652 that you had graciously calculated for me (I created an amortization schedule with those two mortgages). So he didn't freak out like I/we expected! My plan is to counter back with a monthly payment in the middle of my first offer and his counter, which would only include a change to the 2nd interest-only mortgage from 2% to 2.5%, making the monthly payment close to $1,726/mo. Cash flow is king, so every little bit that I can get him to come off that $1,800 will be helpful.

Thanks again for your help on those calculations. I really appreciate it.

Originally posted by @Joseph Parker :

@Chris Mason Wanted to update you on this deal. I think I failed to mention this is for a 5-unit commercial office/retail space, so not residential (which doesn't matter regarding what I was asking help with). You may have realized that it was commercial when I detailed the best bank financing I've found.

Anyway, the seller came back with a counter, agreeing to all details except wanting $1,800/mo versus the $1,652 that you had graciously calculated for me (I created an amortization schedule with those two mortgages). So he didn't freak out like I/we expected! My plan is to counter back with a monthly payment in the middle of my first offer and his counter, which would only include a change to the 2nd interest-only mortgage from 2% to 2.5%, making the monthly payment close to $1,726/mo. Cash flow is king, so every little bit that I can get him to come off that $1,800 will be helpful.

Thanks again for your help on those calculations. I really appreciate it.

 Grats on the slamming deal. When there's seller financing under those rates/terms, us institutional lenders can't touch it, not even close!

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