Need help in structuring a seller finance deal

[Hassan Johnson]

Hello all, my wife and I are in the south Florida area and are considering an offer of seller financing with our landlord. Our hope would be to structure it to where we can have modest cash flow when we decide to move out and rent out the home as our first rental property. We are still in the midst of doing our due diligence to reverse engineer what our offer could be considering first what we can rent out the place for and working backwards from there. To give a bit of background, both my wife and I are from south Florida, I am a military veteran and would qualify for a VA loan but with interest rates where they are currently, I doubt we would be able to be cash flow positive without a significant down payment. When we consider the home payment to the landlord, taxes, insurance, HOA fees, maintenance and property management, we figured we'd have a better chance of generating cash flow going this route.

Currently we're using Zillow and Rentometer to determine what we could potentially rent out the place for which as of the time of this post would be around $2300-$2400 per month for our 2 bed 2 1/2 bath townhome. With that being said, to reverse engineer what we could pay to our landlord monthly would be to:

·take $2300 conservatively to start

·minus profit of $300

·minus the monthly taxes, HOA and monthly insurance (we'll work with the landlord to get these amounts)

·minus 5% of the rent for maintenance (from what I researched, this could be a place to start but we are open to any better suggestions)

·minus property management of 10% of the rent

·lastly we'd arrive at the number we can offer the landlord on a monthly basis +/- $50

Our landlord hasn't given a number, down payment or interest he'd be interested in yet but I figured to ask that first before piecing together an offer. Any help that can offered in the endeavor would be greatly appreciated! As an aside, we have a real estate attorney on a personal level that can assist with drafting the contract when all is said and done with our number.

[Drew Sygit]

While you're going about the correct process to determine what to offer, you stopped where you have to "translate" the monthly payment to a purchase price.

I used the word tranlsate because when it comes to seller-finacing, it is not always a straightforward calculation. 

You may need to agree to an above market sales price to entice the owner to accept a lower monthly payment. 

Seller-financing allows a buyer to interplay several variables to find a package that works for the seller and buyer:

1) Monthly payment (does it include taxes, insurance, HOA, etc.?)
2) Sales price
3) Term of agreement until full balance paid (often called a balloon payment)
4) Amoritization time for payment calculation
5) Interest rate

Often these deals are structured with balloon agreements - you may amoritize the payments over x years, but the Note must be paid off in y years. Often referred to as a "x due in y".
EXAMPLE: amoritize for 30 years, but balloon payment due in 5, so "30 due in 5".

There's a whole lot more you can negotiate with this, but this is the basic version.