Help me structure a deal

6 Replies

Good Day fellow BPers,

My expired listing marketing is starting to pay off. I met with a couple yesterday who received my post cards from my expired listing campaign. The house is a family home that has been in the family since it was built in 1908. I say that to say it has alot of love in it and not much work is needed besides from an eyeball inspection. So here are the numbers I'm working with:

3bed/2ba 

1900+ Sq ft

Tax value $72500

Asking price $50000

Market rent $700-$800

Owner is willing to finance but wants original asking price from listing which was $57,100. I'm looking to add this to my rental portfolio but this is the first time a homeowner has been willing to finance. 

 So my question is what would you offer this owner,  for those experienced in owner financing? Also, please advise if any additional clauses should be included in the contract. I'm trying to make this deal a win for all parties involved. 

How much down are they asking for or also how much down can you afford?

With owner financing, its ok to pay more for a home if you get the terms you are looking for.  

If I can get zero down I might take the full price they are looking for and maybe pay a 6%-7% rate and also get a 30yr amortization with a 10yr balloon. 

Now if they are asking for a down payment I would need a better price depending on how much they require.  

Many things to consider, keep up updated.

Thanks Curt Davis for your insight.  He didn't have a specific down payment amount so I can start at 0 down. He did mention that he'd like a 5 year payoff because of his age I'm open to this but we'd definitely have to agree on 30 yr amortization.  I'll keep you updated on our agreement! Thanks again

There seem to be 4 variables in the structure of your financing:

1. Down payment - I would start at 0 here

2. Price - the highest I would go start would be 47K since that would be his net from selling at his asking price, but this really needs to be driven by what makes you money, not how much he wants to get

3. Interest - I would start at the IRS minimum for medium term loans, I would be most flexible on this one since it is a deductible expense

4. Duration - I would be fine starting at 5 years, but any increase in price should be offset with a longer duration and bargain interest rate

Be sure you have a decent exit strategy if you have to sell the property soon after you buy it.  Don't agree to a price that won't work just because the financing terms are easy.

Wow Jesse T. That's an eye opener, i didn't think about his net amount. And you did bring up a good point with the exit strategy.  I may keep it long term or do a lease to own with the tenants. Im leaning towards lease to own therefore I do need to think in terms of my exit and not easy financing. The Jan 2015 minimum IRS rates are 1.75% does this sound right or am I looking at the wrong rates? 

Thanks

@Qulia Bryant  

I am new to this REI world and L/O is what I want to focus on. I will be keeping track of this thread to see what you settled on.

What the house can afford to pay is crucial.

I would look at paying full price but on installments

Say 400 a month divided by 70000

175 payments

Then look at minimum interest from IRS imputed interest

http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/Interest,-Dividends,-Other-Types-of-Income/1099-INT-Interest-Income/1099-INT-Interest-Income

Then add the interest

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