What's a good way to pitch 100% seller financing for a multifamily property???

Question

I want to buy multifamilies with high equity, and I would like to get them with seller financing @ 100% This sounds difficult to pitch to a seller, and was wondering if someone had any good tactics/selling points. One angle I wanted to try offering to refinance the property after so many years of owning it, so I can pay them off with a bank loan. Anyone else have any good selling points?

Bill Gulley · Answer

What you "present";

1. Solve the seller's problem

2. Point out the tax benefits

3. Point out the interest earnings over time

4. Point of the security being a property no one else knows better than the seller

5. Look at the deal from a property management position, not so much as an owner's position. That means don't get greedy at first, graduate payments to performance and as you build equity then reward yourself.

6. You need the property titled in your name to;

a. make repairs

b. carry out legal matters (such as permits, notices, evictions, law suits)

c. insurance requirements and administration of claims

d. tax advantages

e. ability to contract for repairs

In other words, to do what the owner will be relieved of except the receipt of the income.

First solve the sellers needs. If they need some cash, find how to sell part of the note for the cash or make two loans.

The reason you need to build your circle of influence and know people who might be selling is to build your reputation and trust, after that the problems solving is much easier. Good luck :)

Joel Owens · Answer

First I would get rid of the word (pitch). I don't like that word and it sounds like someone is trying to be duped into doing something. I hear commercial listing brokers use that word and I stay away from it.

Secondly I would like to know where you formulated the idea that multifamily owners with high equity will just want to give you a property at 100% financing??

So I own a property that has say 400k in equity and it's throwing off nice cash flow. Now you come along and want 100% financing and I get no cash flow. You take over the property and gets run down due to various factors. Now I have to foreclose due to issues with the property. I get it back and NOI is 30% less than before and my property has lost hundreds of thousands in equity.

Even if you get 100% financing you still need tens of thousands for closing costs and due diligence and then even more for reserves.

Back in 2009,2010 owners would due 100% in some cases but they were problem properties that needed turning around.

Unless you have a family or friend connection directly as they own the property to help you out I do not see a remote chance of this happening. I do speak from experience.

Hope it helps. Good Luck

Bryan Jackson · Answer

Bill is dead-on.  Joel's I just did a 100% deal (this month) and your fears are understandable.  It's one of fear that the buyer would let the place run-down. I countered with my seller with simply, "I cant let it run down, I have to keep the property trending up from a rent perspective, if it trends down, I lose too".  Who wants to buy a investment property and lose it?

The 100% finance deal I did was on a 4plex.  The property was lien free and the owners were retired and simply wanted out.  They also wanted a little more for the property than it was worth.  I accepted their price but negotiated zero down and a low interest rate to counter the perceived equity.  Our terms were a 20 year amortized mortgage with a balloon at 7 years.  At 7 years I walk into a lender and get a loan with zero down as it will be well under 25% LTV.

What did the owners get out of the deal?

1.  "Out" - That was the number 1 thing.  They didn't need the purchase price upfront, they were doing well on their own.

2. Mortgage Interest - the owners will make an additional 50K on top of their asking price over our agreed mortgage term which is fantastic return.

3.  Security in knowing that a good owner will be handling their property appropriately and that if something did happen to me personally they take all of the payments and get their property back.

4.  A steady monthly monetary "drip" from the property.  Still nice and roughly 60% of the rents they were receiving before.

What did the owner want to know to make them want to do the deal?  They wanted to know if I could handle the property.  I've had rental property for 12 years.  The day I walked through their property, we also drove to my property so they could see the standard of property that I manage.  They were pleased to find that my property (that was in a similar price range and in the same neighborhood) was slightly nicer than theirs.  No questions asked from then on out.  You're going to need an established history as a landlord to make a deal like this work.  If I was a newbie they would have never proceeded I'm sure.

Hope this helped.

Bryan

Bryan Jackson · Answer

@Chris Viglietta

Seller financing is all negotiable, every, single, bit.

"However, did I miss the part where you explain how you got 100% financing?"(see Note at the bottom) - I'm not certain what you are asking here. I did share: "The 100% finance deal I did was on a 4plex. The property was lien free and the owners were retired and simply wanted out. They also wanted a little more for the property than it was worth. I accepted their price but negotiated zero down and a low interest rate to counter the perceived equity. Our terms were a 20 year amortized mortgage with a balloon at 7 years. At 7 years I walk into a lender and get a loan with zero down as it will be well under 25% LTV." Do you have a specific question?

"What was the vehicle for the 20yr term mortgage with a balloon at 7 years?" - What do you mean what was the vehicle? These were simply the terms the seller and I agreed to. I didn't want to do a 30 year as that's not within my timeframe and the property is still profitable on a 20 (I'm more of a buy and hold investor). I asked for them to carry the full term of the loan, but they didn't want to do that (as they were retired and concerned naturally that they wouldn't be alive to see the property paid off). So I defaulted back to a number of years that would get the property under 25% LTV. 7 Years. My goal here was to minimize my cash outlay which this achieves nicely.

"By no lien, do you mean the mortgage was paid off?" Yes. Seller financing works best when the the seller owns the property free and clear. That way they act as the bank and the deed is transferred to me/you just like it would in a bank financed scenario. In scenarios where the seller keeps the deed, you run the risk of them changing their mind down the road and it gets messy.

*Note.. at the time I wrote the post above our paperwork wasn't compete but we'd all agreed to terms. Paperwork was complete about 3 weeks after the post above. In the end, the seller got gun-shy about doing 100% financing. Frankly (and long story short) due to their attorney telling them they were crazy for doing it. In the end I gave them 2.5% down (which was of course subtracted from the principal). It got the deal done. By all rights an incredible deal and ended up being a 97.5% financing deal. I'd do these all day long if I could.

I'm happy to speak with you over the phone if you'd like. PM me if thats something you're interested in..

Chris Viglietta · Answer

@Bryan Jackson

Awesome experience! However, did I miss the part where you explain how you got 100% financing?

What was the vehicle for the 20yr term mortgage with a balloon at 7 years?

By no lien, do you mean the mortgage was paid off?

I'm facing a similar situation with a SFR where I'm trying to make this a NMD deal. The owners are willing to carry the note. Any help would be greatly appreciated!

I'm a complete beginner :)

Happy holidays,

Chris

Nina Roseman · Answer

Hello @BrianJackson, I have a property under the contract, working on the financing, your advice would be greatly appreciated!

Mike Cumbie · Answer

SORRY DIDN"T REALIZE IT WAS A 3 YEAR OLD POST

EDITED out comments.

Stephen Masek · Answer

As they might say in a prison or inner city, a borrower with little or no equity is the lenders b--- (female dog).  You would have all of the liabilities with none of the equity.  What if a tenant sues? What if rents decline? What about repairs?   What about pollution liability exceeding the value of the property missed for lack of a $2,500 Phase I during the diligence period?

Bryan Jackson · Answer

Happy to help, provide your contact info via PM as long as the conversation centers around tactics. If your convo is around raising capital, I cannot help you with that.

What's a good way to pitch 100% seller financing for a multifamily property???

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