Dallas TX // Seller Financing Deal on the Table, First Timer

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Dallas TX // Seller Financing Deal on the Table, First Timer

Daniel LeGarePro Member
New to Real Estate · Dallas · Member since 2019 · 3 posts · 6 votes

I recently found a house in Dallas (listed on Zillow for 120 days) that is 100% owned by the seller, and they're open to seller financing. I am interested in buying the house and renting it out. I have the ability to put 10% down. Big potential downside- both a selling and buying agent are involved here and I believe they're expecting their 3% each. 

I have never purchased an investment property before (although I do own my primary residence), let alone done a seller financing deal. Can someone walk me through the thought process I should be using when constructing the offer? I'd need the interest rate to be roughly 5% to breakeven on an interest-only loan, and was considering a balloon payment in 5-7 years. I know that interest rate is WELL below market. So maybe this simply won't work. 

The seller is highly motivated to sell and has already knocked their price down 6% since listing it 4 months ago. I'm open to all suggestions, advice, and criticism. 

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Ryan KellyBusiness Member
Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
1y

I actually think it is a benefit to both parties to have professional representation to assist the seller and buyer with these types of transactions. You mentioned you haven't purchased an investment property before or been involved with seller financing transactions. I've worked with many investors in seller financed transactions and an experienced buyer agent would be extremely valuable to you. It sounds like you could have a promising deal, so lean on your experienced agent for guidance and go take action!

[email protected]512-674-5478
Ryan Kelly Group - Keller Williams5110 Reviews
WebsiteView Page
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9 Replies

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  • Beth Perkins
    Real Estate Agent · Austin, TX · Member since 2024 · 4 posts · 3 votes
    1y

    Hi Daniel!  I sell a lot of properties with seller/creative financing in the Austin area.  Many of those deals have agents on both sides who will earn commissions.  It's actually cleaner and more straightforward than building in assignment fees here and there.  You are correct in your assumption that it will impact how low they can go on the down payment, though, b/c commissions will need to be paid out of closing costs.  You can assume about 1% in closing costs in addition to commissions so you're starting around 7% before the seller gets any cash at closing.  That said, the other agent and I frequently reduce our commissions on these deals to make them work and, even if the agents don't, the seller would still be getting around 3% at closing with a 10% down payment which, to me, could be a win-win depending on their situation.  They get cash, you get a pretty low down payment. We also almost always get the interest rate below 5%.  That isn't unrealistic at all. For seller financing deals, I show sellers the interest earned over the life of the loan and total proceeds from the sale.  It is usually pretty significant and might tip the scale in your favor to get them to accept your offer. Hope that helps!

    2Reply
  • Daniel LeGarePro Member
    OP
    New to Real Estate · Dallas · Member since 2019 · 3 posts · 6 votes
    1y
    Quote from @Beth Perkins:

    Hi Daniel!  I sell a lot of properties with seller/creative financing in the Austin area.  Many of those deals have agents on both sides who will earn commissions.  It's actually cleaner and more straightforward than building in assignment fees here and there.  You are correct in your assumption that it will impact how low they can go on the down payment, though, b/c commissions will need to be paid out of closing costs.  You can assume about 1% in closing costs in addition to commissions so you're starting around 7% before the seller gets any cash at closing.  That said, the other agent and I frequently reduce our commissions on these deals to make them work and, even if the agents don't, the seller would still be getting around 3% at closing with a 10% down payment which, to me, could be a win-win depending on their situation.  They get cash, you get a pretty low down payment. We also almost always get the interest rate below 5%.  That isn't unrealistic at all. For seller financing deals, I show sellers the interest earned over the life of the loan and total proceeds from the sale.  It is usually pretty significant and might tip the scale in your favor to get them to accept your offer. Hope that helps!

    This was SO helpful, thank you Beth!! You answered questions I didn't even know I had.
    0Reply
  • Preston DeanBusiness Member
    Realtor · Fort Worth, TX · Member since 2021 · 779 posts · 368 votes
    1y

    HI @Daniel LeGare

    Do you have a realtor? If so I would suggest asking him/her these questions. If not lets connect and I can help. 

    Sellers should be the ones telling you what the terms of seller financing is. Not you. Just like a bank tells you what the terms are, not you as the buyer. But you can try and see what the seller says but I wouldn't get any hopes up. 

    [email protected]817-480-9452
    United Real Estate DFW Properties 565 Reviews
    WebsiteView Page
    0Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    1y

    Just like the asking price, just because the owner suggests one interest rate or term doesn't mean you can't offer something different.  Go for what you need to make it work for you.

    Go get um.

    You never know what commission the seller's agent will get.  That is not typically disclosed up front.  If you have a buyer's agent, you should have already signed a buyer's representation agreement and that fee/commission is disclosed in that document so you should very well know what that charge will be.

    If you were the seller and going to owner finance the property, what would you want to see from the buyer that tells you that they will be able to pay the mortgage moving forward.  Prove that up to the seller so that they know you are a great credit risk.  Do you have a great credit report you can show them?   Do you have reserves you can show them?   Can your first payment be in 90 days, so you have time to rent the property?

    Is the property rentable?  Does it need repairs?  Do you have reserves for repairs?  Let's say the AC or Heat goes out in 60 days, do you have funds to cover that?

    Just some things to think about.

    3Reply
  • Ryan KellyBusiness Member
    Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
    1y

    I actually think it is a benefit to both parties to have professional representation to assist the seller and buyer with these types of transactions. You mentioned you haven't purchased an investment property before or been involved with seller financing transactions. I've worked with many investors in seller financed transactions and an experienced buyer agent would be extremely valuable to you. It sounds like you could have a promising deal, so lean on your experienced agent for guidance and go take action!

    [email protected]512-674-5478
    Ryan Kelly Group - Keller Williams5110 Reviews
    WebsiteView Page
    3Reply
  • Preston DeanBusiness Member
    Realtor · Fort Worth, TX · Member since 2021 · 779 posts · 368 votes
    1y

    @Daniel LeGare

    Heed the very wise advice from @Ryan Kelly !

    [email protected]817-480-9452
    United Real Estate DFW Properties 565 Reviews
    WebsiteView Page
    2Reply
  • Beth Perkins
    Real Estate Agent · Austin, TX · Member since 2024 · 4 posts · 3 votes
    1y
    Quote from @Daniel LeGare:
    Quote from @Beth Perkins:

    Hi Daniel!  I sell a lot of properties with seller/creative financing in the Austin area.  Many of those deals have agents on both sides who will earn commissions.  It's actually cleaner and more straightforward than building in assignment fees here and there.  You are correct in your assumption that it will impact how low they can go on the down payment, though, b/c commissions will need to be paid out of closing costs.  You can assume about 1% in closing costs in addition to commissions so you're starting around 7% before the seller gets any cash at closing.  That said, the other agent and I frequently reduce our commissions on these deals to make them work and, even if the agents don't, the seller would still be getting around 3% at closing with a 10% down payment which, to me, could be a win-win depending on their situation.  They get cash, you get a pretty low down payment. We also almost always get the interest rate below 5%.  That isn't unrealistic at all. For seller financing deals, I show sellers the interest earned over the life of the loan and total proceeds from the sale.  It is usually pretty significant and might tip the scale in your favor to get them to accept your offer. Hope that helps!

    This was SO helpful, thank you Beth!! You answered questions I didn't even know I had.

     You got it!  Anytime!  Best of luck to you with this transaction!

    0Reply
  • Debra MallettPro Member
    Castle Rock, WA · Member since 2017 · 3 posts · 0 votes
    1y
    Quote from @Bruce Lynn:

    Just like the asking price, just because the owner suggests one interest rate or term doesn't mean you can't offer something different.  Go for what you need to make it work for you.

    Go get um.

    You never know what commission the seller's agent will get.  That is not typically disclosed up front.  If you have a buyer's agent, you should have already signed a buyer's representation agreement and that fee/commission is disclosed in that document so you should very well know what that charge will be.

    If you were the seller and going to owner finance the property, what would you want to see from the buyer that tells you that they will be able to pay the mortgage moving forward.  Prove that up to the seller so that they know you are a great credit risk.  Do you have a great credit report you can show them?   Do you have reserves you can show them?   Can your first payment be in 90 days, so you have time to rent the property?

    Is the property rentable?  Does it need repairs?  Do you have reserves for repairs?  Let's say the AC or Heat goes out in 60 days, do you have funds to cover that?

    Just some things to think about.


    0Reply
  • Debra MallettPro Member
    Castle Rock, WA · Member since 2017 · 3 posts · 0 votes
    1y

    Sorry, just a finger slip.  Was interested in the conversation.

    0Reply
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