Seller Financing Terms

[Brie Schmidt]

I may be entering into a seller financing situation where the sellers offered us a portfolio of properties double the size we were initially planning on and offering to finance the down payment that we do not have. What sort of terms are normal? It would be $75k - $175k

[Account Closed]

Originally posted by @Brie Schmidt:
I may be entering into a seller financing situation where the sellers offered us a portfolio of properties double the size we were initially planning on and offering to finance the down payment that we do not have. What sort of terms are normal? It would be $75k - $175k

The sellers are willing to finance your down in second position? Yay! Love when that happens. There are no customary rates or terms for seller financing on investment property. Could be really low, could be outrageous. See what they want and what works for you.

[Joel Owens]

You still need money for closings costs, due diligence, and reserves for ongoing repairs or issues with the property to get it to it's full potential.

Are they offering a land contract or a regular sale where you get the deed??

Sellers like land contracts because they maintain control and if you don't do as promised they take the property back versus a regular sale you are now the new owner with the deed and they will foreclose to get the property back if you won't quit claim it to them. Depending on the state the foreclosure process can be long and expensive and their property deteriorates before they get it back .

[Brie Schmidt]

@Joel Owens This is a portfolio deal originally for 15 properties with a commercial loan - I mentioned to the sellers that I was looking to buy another similar sized portfolio in the area in a year or two when I get the down payment. They said why wait - let's double the portfolio and we can cover what you can't get from the bank in seller financing. So I would assume they would take second position.

It is a family of 15+ members who own 100+ properties and 18 businesses. The grandma wants to liquidate some to invest in other businesses. They would also continue to manage the properties.

They are supposed to be sending me the offer today so I was wondering what seller financing terms to expect so I can benchmark

[Account Closed]

Originally posted by @Brie Schmidt:
@Joel Owens This is a portfolio deal originally for 15 properties with a commercial loan - I mentioned to the sellers that I was looking to buy another similar sized portfolio in the area in a year or two when I get the down payment. They said why wait - let's double the portfolio and we can cover what you can't get from the bank in seller financing. So I would assume they would take second position.

It is a family of 15+ members who own 100+ properties and 18 businesses. The grandma wants to liquidate some to invest in other businesses. They would also continue to manage the properties.

They are supposed to be sending me the offer today so I was wondering what seller financing terms to expect so I can benchmark

If your sellers are experienced investors, they know they will be in second position. I'm guessing the loan offer will have some steep terms.

A seller offering to help you become 100% encumbered is a red flag to me. It sounds as if maybe the properties are difficult to finance and/or they have a limited buyer pool. Where I am there is no shortage of buyers wanting to get into multis most have downs. What's the condition of the properties and what's the area like?

That being said, if the numbers work, then steep terms on the 2nd shouldn't be a problem.

[Account Closed]

Originally posted by @Joel Owens:
You still need money for closings costs, due diligence, and reserves for ongoing repairs or issues with the property to get it to it's full potential.

Are they offering a land contract or a regular sale where you get the deed??

Sellers like land contracts because they maintain control and if you don't do as promised they take the property back versus a regular sale you are now the new owner with the deed and they will foreclose to get the property back if you won't quit claim it to them. Depending on the state the foreclosure process can be long and expensive and their property deteriorates before they get it back .

The OP is getting a loan, so the sellers can't negotiate a land contract. They can just carry in 2nd position.

What's the typical minimal downpayment requirement for commercial loans on rental portfolios?

[Ramon Jenkins]

" They would also continue to manage the properties "

It might not be good idea.

{ better to have your own team in place for this transaction }

Suggestion:

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No early pre-payment penalty.

Inspection would be need on each property

in this potential bulk purchase.

[Brie Schmidt]

The sellers listed 1 property on the MLS. We went under contract already and asked if they had more since we had been approved for a commercial loan for $500k with 25% down. They started to put a package together for us then asked if we wanted to do between $1 and $1.2 million package (our long term goal with the market) They want to put the money into their non REI businesses. So we would put 12.5% down and seller finance 12.5% and commercial loan the 75% LTV

@Ramon Jenkins

- These people are by far the most competent and communicative we have met in the market. I have talked with many brokers/PM/brokerages there and have had trouble getting people to return a simple email, let alone manage our business. We actually had to fire our agent who is representing us for the 1 MLS deal because of laziness and incompetence.

[Brie Schmidt]

@Ramon Jenkins

@Account Closed undefined

I am having problems tagging, sorry!

[Ramon Jenkins]

Okay

[Account Closed]

Originally posted by @Brie Schmidt:
The sellers listed 1 property on the MLS. We went under contract already and asked if they had more since we had been approved for a commercial loan for $500k with 25% down. They started to put a package together for us then asked if we wanted to do between $1 and $1.2 million package (our long term goal with the market) They want to put the money into their non REI businesses. So we would put 12.5% down and seller finance 12.5% and commercial loan the 75% LTV

So the sellers are carrying back a 12.5% 2nd, which makes more sense. You do have a cash down and skin in the game for the commercial lender. Please keep us posted on how negotiations go!

[Brie Schmidt]

@Account Closed

I will!

[Samuel Getant]

Hi Brie 

Any updates?

Samuel 

[Joseph H.]

@Brie Schmidt

How did the deal go? Can you share your experiences? I am looking at a potential 5 property deal with 11 units total.

[Brie Schmidt]

Originally posted by @Joseph H.:

@Brie Schmidt

How did the deal go? Can you share your experiences? I am looking at a potential 5 property deal with 11 units total.

 I couldn't find a bank to allow seller seconds and they didn't want to finance the whole deal