First time creating a seller financing offer

[Matthew Chiarello]

I am looking to make an offer a 2BR condo for use as a long term rental. List price is 320K and it has been on market for 60 days. The seller purchased the property as an investment property 6 months ago. Story I got was that she lives out of state, thought she had family local to help manage it but they are moving. Seller purchased for 310k, put 100k down and has a mortgage for 210k. I calculated her monthly payment is 1300.

Since it is a vacant investment property where she will be taking a loss at sale and has been on market for 60 days, I am thinking seller financing may be mutually beneficial.

I am planning to make 2 offers:

300k with conventional mortgage. I would be putting 60k down and at 7% mortgage will be 1600/month. It should cash flow 400/month after taking taxes/HOA into account. Seller will be taking a 30k+ loss with this route.

325k with 50K down to seller, 3 years of payments $1600/month, and a balloon payment of 215k at the end of 3 years.

Benefits to me: (1) 10k less downpayment, (2) with the conventional route, the loan would be at 228k after 3 years of payments, so I will gain additional equity with the 2nd option since I will owe 215k (presumably I will have to refinance at that time).

Benefit to seller: she gets over asking price, 50K upfront and $300/month of cash flow.

Does this offer and structure sound reasonable? I have never attempted to make a seller financing or any creative financing offer before so I am trying to get a starting point.

Thank you! Open to any ideas, looking forward to reading any ideas you may have!

[Chris Seveney]

Quote from @Matthew Chiarello:

Quote from @Bill B.:

If it could rent for $2,000/month why is she selling? She could hire a full service PM and net $1,840/mo. She doesn’t need local family to manage it. 

Picture it from her side. If it was bought as an investment property, it works great as an investment property. 

What you’re suggesting is not cash flow, it’s return of principle, giving her her own money back  

If she sells with your deal. She put in $100k you’re going to give her about $30k of that back after commissions. Then you’re going to ask her to give you a 3 year 0% loan? if you never miss a payment and the bank doesn’t call the loan due. So she would have earned say 5% on her $280k (from a traditional sale after commissions.)  times 3 years or $52k in interest. So she makes $27k less my letting you finance it?

A more likely situation is you’d have to offer AT LEAST 7% to her, making your payment $1830 and your payoff in 3 years $265k. Then she still only makes 2% extra for taking the risk of you not paying versus a bank. So she’d probably want 9%. 

Maybe she’s financially illiterate and won’t see what a scam your seller finance offer is, but she did have $100k laying around to buy the property, so probably not. But again she should just rent it out. 

Thank you for the thorough reply, I am not trying to scam- that is why I posted here instead of making her an offer that came across that way. I saw how that proposal is basically her giving me a 0% loan, but at the same time I believe that structure will avoid her taking a large loss (approximately 30k if she accepts a 300k offer).

I do not know why she doesnt get a PM, I only share the facts of when she purchased it, the purchase price, and the reasoning she shared with my realtor as to why she is selling after such a short time period. Thank you again!

 It does not matter why she does X or Y. If this is a property you want to buy you can make any offer you want but your owner financing offer is awful if she has any financial acumen. 

If it were me as a seller the over asking price ok and down payment but I would make you pay interest only at 8-9% for a year or two with a balloon. That will give incentive to refinance ASAP whereas these 0% loans the borrower has zero interst in refinancing out early.