Seller financing fort lauderdale interest only

Miami, Florida
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Seller financing fort lauderdale interest only

Drew Slew
Rental Property Investor · Union city, NJ · Member since 2016 · 203 posts · 43 votes

Quick question on those who have done seller financing:

- Buying a 0.3 acre downtown fort lauderdale multi family, negotiated an around 1M price w lot of development rights, double lot. seller got it way back early 90s for pennies

- got good credit 800+, w2 job etc put 40% down and mortgage bank offered 6.62% 30yr fixed (CF negative as this would make current rent roll not too much compared to the PITI)

- property is in ok condition, needs 20-30k repairs which seller OKd, and all 3 tenants are month to month, pay bit under market but also ok

- seller would like to do seller financing, interest only at 5.75%, 30yr amortization at 7yr balloon (CF would be positive) - id be paying some principal as well, just to grow some equity

- buying this deal for the future development of the area (las olas, kushner broward crossing) so not really worried even if we overpay for it now, but never done creative finance as i always relied on a strong W2 job to get good loans but obv im used to 3% 30yr rates from covid times not this 6+ environment..

Goal is to hold the property 3-5yrs, and then actually develop it or sell half the land / refinance, pull out HELOC if it appreciates.

Questions:

1) What does he know that i dont? Trying to make sure seller isnt pushing this seller financing without us knowing something they do. Overall we both would win it seems quite big, esp w interest only the cashflow would be positive. he didnt really like we are doing an appraisal as he might be thinking he can pull a fast one on us w his price tag.. again happy to overpay as i see the potential but obv not outrageously. 

2) Can principal be payed down in interest only seller financing? even if its interest only, id want to pay down principal here and there. seems like sellers would offer this interest only route so they have 0 capital gains tax, but id rather pay down a bit of principal in 7yrs. i see its not required but it should allow for principal paydown in promissary note

3) any general advice to look out for on seller financing?

Thanks any input

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Dominic Mazzarella
Investor · Hendersonville, NC · Member since 2016 · 498 posts · 285 votes
1y
Quote from @Drew Slew:

Quick question on those who have done seller financing:

- Buying a 0.3 acre downtown fort lauderdale multi family, negotiated an around 1M price w lot of development rights, double lot. seller got it way back early 90s for pennies

- got good credit 800+, w2 job etc put 40% down and mortgage bank offered 6.62% 30yr fixed (CF negative as this would make current rent roll not too much compared to the PITI)

- property is in ok condition, needs 20-30k repairs which seller OKd, and all 3 tenants are month to month, pay bit under market but also ok

- seller would like to do seller financing, interest only at 5.75%, 30yr amortization at 7yr balloon (CF would be positive) - id be paying some principal as well, just to grow some equity

- buying this deal for the future development of the area (las olas, kushner broward crossing) so not really worried even if we overpay for it now, but never done creative finance as i always relied on a strong W2 job to get good loans but obv im used to 3% 30yr rates from covid times not this 6+ environment..

Goal is to hold the property 3-5yrs, and then actually develop it or sell half the land / refinance, pull out HELOC if it appreciates.

Questions:

1) What does he know that i dont? Trying to make sure seller isnt pushing this seller financing without us knowing something they do. Overall we both would win it seems quite big, esp w interest only the cashflow would be positive. he didnt really like we are doing an appraisal as he might be thinking he can pull a fast one on us w his price tag.. again happy to overpay as i see the potential but obv not outrageously. 

2) Can principal be payed down in interest only seller financing? even if its interest only, id want to pay down principal here and there. seems like sellers would offer this interest only route so they have 0 capital gains tax, but id rather pay down a bit of principal in 7yrs. i see its not required but it should allow for principal paydown in promissary note

3) any general advice to look out for on seller financing?

Thanks any input



If the seller is pushing financing, they likely want steady income without a big tax hit. If the price and terms work, it’s probably just about structuring the deal in their favor. That being said, if a seller is pushy about financing it does raise a yellow flag for me, perhaps they want to finance because they don't want a bank or anyone else looking under the hood. I'm extra cautious when analyzing a deal like this, but a lot of them end up being great.

For interest-only financing, negotiating some principal paydown is a good idea. Even if it’s not standard, a well-structured promissory note could include it. Sellers who don’t need a lump sum upfront may be open to it.

Biggest thing to watch is the balloon payment. Make sure your exit plan aligns with it, whether that’s refinancing or selling. Also, check for prepayment penalties or clauses that could cause issues.


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  • Dominic Mazzarella
    Investor · Hendersonville, NC · Member since 2016 · 498 posts · 285 votes
    1y
    Quote from @Drew Slew:

    Quick question on those who have done seller financing:

    - Buying a 0.3 acre downtown fort lauderdale multi family, negotiated an around 1M price w lot of development rights, double lot. seller got it way back early 90s for pennies

    - got good credit 800+, w2 job etc put 40% down and mortgage bank offered 6.62% 30yr fixed (CF negative as this would make current rent roll not too much compared to the PITI)

    - property is in ok condition, needs 20-30k repairs which seller OKd, and all 3 tenants are month to month, pay bit under market but also ok

    - seller would like to do seller financing, interest only at 5.75%, 30yr amortization at 7yr balloon (CF would be positive) - id be paying some principal as well, just to grow some equity

    - buying this deal for the future development of the area (las olas, kushner broward crossing) so not really worried even if we overpay for it now, but never done creative finance as i always relied on a strong W2 job to get good loans but obv im used to 3% 30yr rates from covid times not this 6+ environment..

    Goal is to hold the property 3-5yrs, and then actually develop it or sell half the land / refinance, pull out HELOC if it appreciates.

    Questions:

    1) What does he know that i dont? Trying to make sure seller isnt pushing this seller financing without us knowing something they do. Overall we both would win it seems quite big, esp w interest only the cashflow would be positive. he didnt really like we are doing an appraisal as he might be thinking he can pull a fast one on us w his price tag.. again happy to overpay as i see the potential but obv not outrageously. 

    2) Can principal be payed down in interest only seller financing? even if its interest only, id want to pay down principal here and there. seems like sellers would offer this interest only route so they have 0 capital gains tax, but id rather pay down a bit of principal in 7yrs. i see its not required but it should allow for principal paydown in promissary note

    3) any general advice to look out for on seller financing?

    Thanks any input



    If the seller is pushing financing, they likely want steady income without a big tax hit. If the price and terms work, it’s probably just about structuring the deal in their favor. That being said, if a seller is pushy about financing it does raise a yellow flag for me, perhaps they want to finance because they don't want a bank or anyone else looking under the hood. I'm extra cautious when analyzing a deal like this, but a lot of them end up being great.

    For interest-only financing, negotiating some principal paydown is a good idea. Even if it’s not standard, a well-structured promissory note could include it. Sellers who don’t need a lump sum upfront may be open to it.

    Biggest thing to watch is the balloon payment. Make sure your exit plan aligns with it, whether that’s refinancing or selling. Also, check for prepayment penalties or clauses that could cause issues.


    2Reply
  • Drew Slew
    OP
    Rental Property Investor · Union city, NJ · Member since 2016 · 203 posts · 43 votes
    1y

    Thanks yes makes sense they were transaparent about having less tax with it. Its also good to have 1%+ less rate but the whole baloon payment makes no sense. Id like to put a HELOC on it or redelop it after a few years, the whole points of purchase is this is a booming downtown area lot of development rights etc, dont want to be in a financial structure that banks will frown upon.

    I also want to make sure w seller financing there is an online dashboard i can log in at escrow or title company to track the loan paydown and monthly payments like w any mortgage bank.. did not see that on forums. Def dont want some manual emailt tracking from their attorney, would be super basic.

    Told them id be putting principal payments in it here and there, so want to make sure that is all included, just interest only is not that good. 


    I got 800+ credit and great mortgage offers so only reason im doing this seller financing idea is that its lower monthly cost

    1Reply
  • Jason Dillard
    Real Estate Broker · Greer, SC · Member since 2013 · 548 posts · 271 votes
    1y

    I would rather have I/O. What down payment does seller want? Does seller have debt? There is way to get this done without using your Cash.

    1Reply
  • Drew Slew
    OP
    Rental Property Investor · Union city, NJ · Member since 2016 · 203 posts · 43 votes
    1y

    Thanks for all the input. Price is ~1M, im putting 40% down, mortgage bank gave me 6.62% and seller is offering 5.75%. No debt, they bought this place for like 200k in early 90s, quite old people. im not sure if they will be alive for the 7yr term but they chose it..

    The reason im putting so much down is im buying w gift money and i want low monthly payments. Mortgage PITI would be around 5300/m total w insurance, seller financing is around 3600/m w principal, 3100/m with just interest. Im def going to pay principal

    Biggest q i still dont really understand is:

    - what happens if i refinance before 7yr term or sell

    - at year 7, can i extend balloon or not

    - at year 7 if value appreciated a lot, can i do a HELOC on it and use that HELOC to pay off the balloon - probably not due to lien being secondary etc on heloc

    0Reply
  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    1y

    I've done a number of seller financed deals as a buyer.  In response to your questions:

    Biggest q i still dont really understand is:

    - what happens if i refinance before 7yr term or sell

    As you'll be the owner, you can refi or sell before the 7 years.  There may or may not be a pre-pay penalty, obviously I would negotiate for no pre-pay.

    - at year 7, can i extend balloon or not

    No, unless it's in the contract or the seller agrees to it.  You can put in language for an extension for a certain payment amount.  Gives you more options.

    - at year 7 if value appreciated a lot, can i do a HELOC on it and use that HELOC to pay off the balloon - probably not due to lien being secondary etc on heloc

    Yes on the HELOC, but it would probably be easier just to refi and pay off the seller, and cash out more money too.

    Hope that helps and good luck!

    1Reply
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