How do I do 30% owner financing mortgage on a multi?

Question

I have only ever bought for cash beforehand on investment properties.  This time, because I just don't have enough cash on hand in the LLC that will purchase this property, the owner has agreed to hold a note for about 30% of the purchase price, for a 2 year loan at 5% simple interest, no points, with monthly payments over two years, can be paid off early with no prepayment penalty.  It's all very casual - owner is eager to sell, we definitely want to buy it, and we've come to terms on a price that we think is fair.  I just have no idea how to do this!  No agents involved, just we'll use our own attorneys.  Any advice?

Vinay H. · Answer

Yes make sure your attorney reviews this. Will the loan be recorded as first mortgage? Is the rest of the 70% coming from your cash? Have you had the property appraised and run title check to make sure it is free and clear of liens and other encumbrances?

Karen F. · Answer

We know this market very well, spouse has been a contractor and we've been in the business for almost a decade.  We have been very, very conservative.  Previously, everything was bought for cash - OUR cash.  We've done quite well.  Husband inspected, we already know we're getting it for a fair price, probably a bit under what it would bring on the open market.  Husband has spoken to some of the tenants, we know what we're getting into, we know this town well, we know the market there very well.  Mortgage will be first, and we are paying the other 70 percent as cash.  Our lawyer will do title check, husband has already been to the town's office, checked the card, spoken with the building department about the building.  We're going in with eyes wide open.  We just have never been the recipient (or dispenser) of owner financing, don't know anything about how it's done.  I proposed and they accepted 2 yr term at 5% simple interest.