Who's Using Seller Financing to Lockdown Multifamily? Lets make it happen!!

[Priscilla Rodriguez]

Hey BP Family,

I’m new to the multifamily space and just getting my feet wet, but I’m eager to connect with folks who are experienced in using seller financing to acquire multifamily properties. I know creative financing can be a powerful tool, especially when you’re building your portfolio, and I’d love to learn from those already doing it successfully.

If you’ve done deals with seller financing—or know the ins and outs of structuring those kinds of transactions—I’d appreciate any advice, resources, or even just connecting to swap ideas.

I’m all about building real relationships in this space and learning from the people who’ve been in the trenches!

[Don Konipol]

Quote from @Priscilla Rodriguez:

Hey BP Family,

I’m new to the multifamily space and just getting my feet wet, but I’m eager to connect with folks who are experienced in using seller financing to acquire multifamily properties. I know creative financing can be a powerful tool, especially when you’re building your portfolio, and I’d love to learn from those already doing it successfully.

If you’ve done deals with seller financing—or know the ins and outs of structuring those kinds of transactions—I’d appreciate any advice, resources, or even just connecting to swap ideas.

I’m all about building real relationships in this space and learning from the people who’ve been in the trenches!

Typically sellers are not motivated to carry back financing for a property they’re selling - the reason seller’s DO it is because either they are obtaining a higher price then possible with a cash sale or sale to a buyer obtaining third party financing or can sell a property that’s does’nt qualifying for third party financing because of area, type or condition.

Bottom line is that in my experience 98% of the time seller financing is utilized the buyer is paying over market price. Gurus sometimes suggest sellers are motivated to carry back financing a note so as to “spread out” income tax’s due.  This motivation died in 1981 when the maximum marginal rate was reduced from 70% to half that; when homeowners were able to exclude $500k in gains from income, and when 1031 exchanges rules were liberalized and a whole industry popped up making them easy to do. 

The buyer of a property hoping to buy with owner financing come in a couple of different varieties.  One is the buyer with sufficient funds for down payment and operating reserves, but who doesn’t qualify for third party financing.  They may pay a small premium (10 -15%) over market.  Next is the buyer with no money available; they’re looking for 95% seller financing or more.  If they could put a deal together, it’s at a 20% + premium, and any projected cash flow is a fantasy, typically leaving out various expenses from the projected analysis and fantasizing about the ease of increasing rents 25%.  Finally there’s the buyer who has the DP, cash reserves, and ability to qualify for a third party loan, but desires seller financing for a lower interest rate.  This scenario was much more likely 40 years ago when mortgage rates were in the mid teens.

many years ago I owned an apartment complex in a third tier type area on the far outskirts of Houston.  After running it for 3 years and never able to bring the profitability up to where we thought it should be (mostly because of constant repairs, maintenance and improvements), we decided to sell. Because we had replaced almost every wear system, we were willing to maximize the selling price by doing seller financing.  The offers came in over the first weekend; 11 offers in all.  I ended up selling to 2 physical education teachers I knew who had both experience in real estate and the capital for a 20% down payment and operating reserves.  One partner quit her job and went to manage the property - full time.  They had assumed that after 6 months she would be able to return to Houston and not have to be so hands on.  The truth of the matter was that because they had paid the “seller finance premium” over cash price of about 15% they never had the cash flow to allow for absentee ownership.  The story has a happy ending however as in the next 24 months interest rates dropped sharply and they were able to refinance at a much lower rate.