Seller financing a triplex - $500k, $80k down, 6% - I don't have $80k, help?
Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes
Seller financing a triplex - $500k, $80k down, 6% - I don't have $80k, help?
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Austin, TX · Member since 2016 · 11 posts · 11 votes
3yHi AJ, is it a good deal. Just because the realtor said $500k doesn't necessarily mean it is a good deal. Do some comps, if you need help with this I'm happy to help. Why do you want to buy it? A value add opportunity? Are you gonna BRRR it? Do the rents cover the mortgage? Assuming it is a decent deal, can you offer him different terms and see if you can fund it with a smaller entry cost which might make it easier for you to find the cash (hard money, a partner to fund the cash and share in the ownership). Say 10% down ($50k) instead of the 16% down he wants. If he owes a mortgage on it maybe the rate is low and you can buy the property "Subject to" the current mortgage (take over his low rate mortgage and pay him the balance with seller finance at 6% to save you some $$). Happy to discuss all of these strategies over the phone just shoot me a dm. Good luck!
31 Replies
- Austin, TX · Member since 2016 · 11 posts · 11 votes3y
Hi AJ, is it a good deal. Just because the realtor said $500k doesn't necessarily mean it is a good deal. Do some comps, if you need help with this I'm happy to help. Why do you want to buy it? A value add opportunity? Are you gonna BRRR it? Do the rents cover the mortgage? Assuming it is a decent deal, can you offer him different terms and see if you can fund it with a smaller entry cost which might make it easier for you to find the cash (hard money, a partner to fund the cash and share in the ownership). Say 10% down ($50k) instead of the 16% down he wants. If he owes a mortgage on it maybe the rate is low and you can buy the property "Subject to" the current mortgage (take over his low rate mortgage and pay him the balance with seller finance at 6% to save you some $$). Happy to discuss all of these strategies over the phone just shoot me a dm. Good luck!
- Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes3y
First, determine the real market value of the property. Don’t go by what an agent or your family friend says it’s worth.You need to do a lot more due diligence before even thinking about making an offer.
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes3y
Good advice by @Eric Gerakos
Assuming for a second it’s worth doing, remind him his broker price of 500 will be lessened by the 40k commission, and the bank will be making the money off the loan, not him.
So try for 460-480 with as low a down payment as he can stomach and offer to split that payment into upfront and 3-6 months later. Presumably the tenants payments would allow you to save a chunk towards the second tranche, if you will and you have that time to earn, borrow, etc. more cash separately.
6% is a very good rate right now so I’d sweeten the deal with a pre-payment penalty, say 3 years? Could be a win win. Not very much risk for him.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @V.G Jason:
Is it even worth $500k?
in the Eugene market if its in decent shape 500k could easily be the value yes. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@A.J. Vanderhoff
I recommend trying to bring on a partner or not buy it.
It’s like going to buy a Ferrari, just because you can get a deal on one doesn’t mean you should buy it if you cannot afford it.
7e investments53 Reviews - 3ySam YinPro MemberLos Angeles, CA · Member since 2021 · 584 posts · 738 votes
@Chris Seveney
Ditto.
Also, based on the need for capital, will you be operating the deal based on your experience? Or will you be depending on a PM? how much reserves for capex do you have or can your potential partner tolerate?
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3y
Quote from @A.J. Vanderhoff:
He said a realtor has advised him to sell it for $500k
I do not have the $80k for the down payment.
Listing for $500k and netting $500k after 60+ days + after-inspection repairs and showing /offer indigestion are very different.
The net from a $500k listing will be more like $470k. In December.
I remember when I was buying a SF 7plex and didn't have the full $45k down payment. The seller carried a 2nd for $15k (33%) at 1% higher for 3 years. Maybe your seller will carry $30k or so as a 2nd or PMM (purchase money mortgage). - Laveen, AZ · Member since 2016 · 584 posts · 528 votes3y
Quote from @A.J. Vanderhoff:
A family friend of mine who is a long time real estate investor with several properties has offered to sell me one of his properties. It's a 5 bedroom house with two 1 bedroom apartments attached to it.
He said a realtor has advised him to sell it for $500k so he wants exactly that as well as $80k down at a 6% interest rate. It's not on the market and he does not have to sell. If someone is interested in buying it (like me) he will sell for what he wants.
I do not have the $80k for the down payment. If someone could help me with my situation of needing to raising capital and how I should go about it I would really appreciate the input.
My concern for you is if you don't have a down payment, then you don't have any reserves either. - Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @Jonathan R McLaughlin:
Good advice by @Eric Gerakos
Assuming for a second it’s worth doing, remind him his broker price of 500 will be lessened by the 40k commission, and the bank will be making the money off the loan, not him.
So try for 460-480 with as low a down payment as he can stomach and offer to split that payment into upfront and 3-6 months later. Presumably the tenants payments would allow you to save a chunk towards the second tranche, if you will and you have that time to earn, borrow, etc. more cash separately.
6% is a very good rate right now so I’d sweeten the deal with a pre-payment penalty, say 3 years? Could be a win win. Not very much risk for him.
This is a seller financed deal in which no agents are involved. I mentioned that a realtor gave him a price, based on other multifamily recently sold in our area, in which he should be able to get for it. That realtor is not in the deal and this property is not on the market. The seller just had the realtor simply give him a report on what his property should be listed for if he were to sell it.
I like the tactic of paying the down payment in installments on separate dates in the future just as Pace Morby does sometimes on his deals.
Thanks for your input. Much appreciated.
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @V.G Jason:
Is it even worth $500k?
Yes. Duplexes have sold for this price and even more than this price recently in the area.
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @Chris Seveney:
@A.J. Vanderhoff
I recommend trying to bring on a partner or not buy it.
It’s like going to buy a Ferrari, just because you can get a deal on one doesn’t mean you should buy it if you cannot afford it.
I agree. Just because you can make it happen to get the keys of a Ferrari in your hand, is not a reason you should purchase one. But if that Ferrari could bring in a return as an asset, rather than being a liability, and it puts a good amount of monthly cash flow in your pocket each month then someone with an entrepreneurial mindset and business plan for it should think about buying that Ferrari.
If this deal were a dud and did not cash flow and would be just the same as buying something that doesn't bring in any money and does the opposite as a liability does then it would make no sense to buy it.
Thanks for the input. Much appreciated.
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @Sam Yin:
@Chris Seveney
Ditto.
Also, based on the need for capital, will you be operating the deal based on your experience? Or will you be depending on a PM? how much reserves for capex do you have or can your potential partner tolerate?
Yes, managing myself implementing the same self managing system which is in place for the other properties I already have to manage. If I have no money in this (infinite return) then I will have my money, that wouldn't be put into a down payment, for reserves.
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @Eric Gerakos:
First, determine the real market value of the property. Don’t go by what an agent or your family friend says it’s worth.You need to do a lot more due diligence before even thinking about making an offer.
I posted this the day the seller asked me if I would be interested. I have since then done some analyzing. $500k is a good deal on a property like this in my area.
Thanks for the input.
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @Jeff Ballus:
Hi AJ, is it a good deal. Just because the realtor said $500k doesn't necessarily mean it is a good deal. Do some comps, if you need help with this I'm happy to help. Why do you want to buy it? A value add opportunity? Are you gonna BRRR it? Do the rents cover the mortgage? Assuming it is a decent deal, can you offer him different terms and see if you can fund it with a smaller entry cost which might make it easier for you to find the cash (hard money, a partner to fund the cash and share in the ownership). Say 10% down ($50k) instead of the 16% down he wants. If he owes a mortgage on it maybe the rate is low and you can buy the property "Subject to" the current mortgage (take over his low rate mortgage and pay him the balance with seller finance at 6% to save you some $$). Happy to discuss all of these strategies over the phone just shoot me a dm. Good luck!
It is a good deal. I have done my own research and come to the conclusion that $500k for this three unit property is less than what several duplexes in my area have gone for.
I am not going to do any immediate remodeling to it.
This property has a tenant in one of the 1 bedroom apartments and the other apartment and house are currently empty. The one tenant is paying about $300 less than they should be for that unit (I will get that up to market).
I am definitely going to discuss a smaller entry fee. The seller is my dad's mentor and the man who got my dad into buying rentals back in the 80's so I am toying with the idea of having my dad sponsor the deal to maybe help his willingness to negotiate. The seller is in his 90s so his heirs is really who will be getting the money from the deal. If I can purchase this property smoothly and it all works out then I know he will be ready to start selling me his other properties in the same fashion so that his trust just receives a monthly cash flow payment from them instead of his family having to deal with the properties when he's gone.
Thanks for your input. Appreciate it.
- Accountant · CO · Member since 2018 · 195 posts · 23 votes3y
AJ. I underwrite a lot of deals for others, including creative deals, such as subto, seller financing..the first of all, you do need to know if that's cahs flow @ 6% under their asking price.
- 3yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votesIs this a service you provide?
Quote from @Ashley Zhang:
AJ. I underwrite a lot of deals for others, including creative deals, such as subto, seller financing..the first of all, you do need to know if that's cahs flow @ 6% under their asking price.
- Accountant · CO · Member since 2018 · 195 posts · 23 votes3y
Quote from @Joe S.:
Is this a service you provide?Quote from @Ashley Zhang:
AJ. I underwrite a lot of deals for others, including creative deals, such as subto, seller financing..the first of all, you do need to know if that's cahs flow @ 6% under their asking price.
no. I am in an investor group, I helped others, in return they helped me with my questions.
- 3yScott SmithPro MemberMember since 2022 · 21 posts · 5 votes
I am in the Springfield, Oregon rental market.....shooting-from-the-hip analysis: $500K owner-financed triplex sounds like it is likely a good deal. Perhaps, try to figure out why the seller is stuck on $80k for a down, what is he trying to accomplish, then figure out an alternative way for him to get what he wants.
Is the property in Eugene or Springfield? This is important, Eugene just enacted some restrictive regulations that will increase the cost of operating rental property and risk. Also, Oregon state rent control rules limit to less than 10% per year for rent increases so the under-market unit may end up being under-market for a few years due to legal restrictions.
Why are two of the three units vacant? Are they ready to rent, or will it take your time and money to get them ready?
Area of town can make a big difference on the type of residents that the property will attract and the level of work and risk involved in operating it over time.
Sounds like it is an older property, which is okay, but increasingly lead paint, asbestos, etc. are concerns to residents and government regulators. This translates into increased costs and risks for the owner-manager.
That said, keep checking it out and underwriting the deal, it sounds like there is potential there. If you want to have a cup of coffee sometime and discuss, let me know.
- Real Estate Broker · Eugene, OR · Member since 2019 · 19 posts · 14 votes3y
Hey AJ, Great to see you on here!
for the 500k and at that rate it should be a pretty solid deal unless it needs 50k of rehab or something like that. As far as raising capital. I would just start asking people you know if they would like to make some interest on their money. You know a lot of people in the area and are well-liked. The older generation loves this kind of deal. where they get 6-8% on their money. Can definitely chat more about this if you'd like AJ.
Cheers and good luck.
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @Scott Smith:
I am in the Springfield, Oregon rental market.....shooting-from-the-hip analysis: $500K owner-financed triplex sounds like it is likely a good deal. Perhaps, try to figure out why the seller is stuck on $80k for a down, what is he trying to accomplish, then figure out an alternative way for him to get what he wants.
Is the property in Eugene or Springfield? This is important, Eugene just enacted some restrictive regulations that will increase the cost of operating rental property and risk. Also, Oregon state rent control rules limit to less than 10% per year for rent increases so the under-market unit may end up being under-market for a few years due to legal restrictions.
Why are two of the three units vacant? Are they ready to rent, or will it take your time and money to get them ready?
Area of town can make a big difference on the type of residents that the property will attract and the level of work and risk involved in operating it over time.
Sounds like it is an older property, which is okay, but increasingly lead paint, asbestos, etc. are concerns to residents and government regulators. This translates into increased costs and risks for the owner-manager.
That said, keep checking it out and underwriting the deal, it sounds like there is potential there. If you want to have a cup of coffee sometime and discuss, let me know.
Scott,
Thanks for commenting. It's good to meet someone else on here from my area.
It is not in Eugene, thank goodness. The two units are empty because he had a direct marketing mailer sent to him about buying it. He contacted the person to see what the guy would give him but the guy tried to talk him down to a lower down payment. Through that process he held off on filling the units. They're not empty because of needing work.
I think getting together for a cup of coffee is a good idea. I am eager to meet new people in the area that have the same interest in Real Estate investing as I do.
Let's message directly about getting in touch.
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @Josiah Kellerman:
Hey AJ, Great to see you on here!
for the 500k and at that rate it should be a pretty solid deal unless it needs 50k of rehab or something like that. As far as raising capital. I would just start asking people you know if they would like to make some interest on their money. You know a lot of people in the area and are well-liked. The older generation loves this kind of deal. where they get 6-8% on their money. Can definitely chat more about this if you'd like AJ.
Cheers and good luck.
Josiah,
Hope you're doing good. Thanks for the kind words. I remember you being well liked also.
Yeah, it's a good situation if I can acquire this property. I'm getting my ducks in a row right now and plan to meet with the seller soon to try and iron out a deal that works for both of us. I think you probably know the seller or know of him.
We should link up sometime.
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes3y
Quote from @Steve Vaughan:
Quote from @A.J. Vanderhoff:
He said a realtor has advised him to sell it for $500k
I do not have the $80k for the down payment.
Listing for $500k and netting $500k after 60+ days + after-inspection repairs and showing /offer indigestion are very different.
The net from a $500k listing will be more like $470k. In December.
I remember when I was buying a SF 7plex and didn't have the full $45k down payment. The seller carried a 2nd for $15k (33%) at 1% higher for 3 years. Maybe your seller will carry $30k or so as a 2nd or PMM (purchase money mortgage).Steve,
Great insight. This is a strategy I've been thinking about and will be bringing up with the seller when I meet with him next to narrow some things down.
Thanks so much.
- Specialist · San Diego · Member since 2023 · 98 posts · 20 votes3y
Quote from @Jonathan R McLaughlin:
Good advice by @Eric Gerakos
Assuming for a second it’s worth doing, remind him his broker price of 500 will be lessened by the 40k commission, and the bank will be making the money off the loan, not him.
So try for 460-480 with as low a down payment as he can stomach and offer to split that payment into upfront and 3-6 months later. Presumably the tenants payments would allow you to save a chunk towards the second tranche, if you will and you have that time to earn, borrow, etc. more cash separately.
6% is a very good rate right now so I’d sweeten the deal with a pre-payment penalty, say 3 years? Could be a win win. Not very much risk for him.
Its awesome to learn different kinds of creative terms from you guys haha!
- Investor · Springfield, OR · Member since 2016 · 15 posts · 4 votes2y
UPDATE:
After running all the numbers and thoroughly analyzing things I showed the seller that what he was offering, $500k, $80k down, 6%, left me appx. -$400 cash flow each month. I then countered with a couple of options. One option gave him $535k on the purchase price, $12k down, with 1%. The other option I proposed is $560k purchase price, $0 down, with 1% interest. Both of these options are structured so that when all three units are filled and at market rent the property will cash flow about $1,000 a month.
After examining the analysis I had done on his offer and then taking a look at my counters from the view point of a buyer he realized that what he was asking for it was a waste of time and if he were to put it on the market and try to sell it to a stranger nobody would want it with his numbers through seller finance.
So, with much larger purchase prices giving him and the beneficiaries of his trust when he passes more money from the property in the end as well as a low or no down payment situation mitigating the capital gains tax he's responsible for, he is understanding the direction we have to go in order for this to be a deal for both him and I.
The deal has been held up for several weeks. He needs to have the foundation worked on before I will buy it. He has someone who does foundation work as a side business and is taking a long time to get the job done.
Hope everyone has a great spring!
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