New to idea of seller financing does this deal make sense?

7 Replies

Hi All,

I'm new to the idea of seller financing and was hoping to pick the brains of some pros on here. I have 2 rental properties currently but obtained them with a traditional mortgage. From what I've read eventually I will be caped at 4 mortgages. To continue I've read seller financing might be the route to go.

I've found a motivated seller looking offering seller finance, however the HOA will not allow for rentals. The only way I can see this makes sense is if I was to move into the home and rent my current home out. My mortgage currently on primary is about $1700 and I can refinance to bring that even lower. If rented I feel I can cash flow a couple hundred dollars possibly rent for up to $1900.

The seller of the new home is looking to get 10% down and asking for $2200 a month which covers taxes. 

Does this make any sense to do as a deal?

@Mike Barry  

Walk away from that deal. HOA fee plus no ability to rent just sounds lousy. Seller financing does not automatically make it a good deal.

Nothing about renting your primary sounds like a good deal.  $200 above your mortgage is just going to cost you lots of money over the years.  I'd sell this one for a profit (hopefully) and move into a 3 or 4 family that allows you to live as close to mortgage free as possible.

Don't worry about the 4 mortgages until you get there.  The real number is actually 10. From 5-10 you'll need 30% down.  

1. HOAs decrease flexibility of creative financing.

2. $200 a month Pos Cash Flow is not great.

3. 10% down is alot to buy, I buy on sub2, wrap and lease option assignment.

4. What is market rent for that property?  Why do you want it?  Just to avoid 4 max loans?

Think about finding owners with problems to solve, expired listings, landlords, fsbos, etc.

Then offer creative solutions like sub2, wrap, master lease, lease w option, etc.

At a glance, I see your house losing a hundred bucks a month with vacancy and maintenance from your cash flow, buying a property that doesn't allow rentals means you're just moving and will need to sell as an exit, you'll probably end up in the shoes of that seller. I don't see a deal here at all, but if that's where you want to move to then by all means, move, but you're house looks like a liability as a rental. Good luck :)

Thanks all for your input, and helping me better understand seller financing. I feel you are right the exit strategy here is not a good one. This is the first seller financing property I have found, and still trying to fully understand the advantages it provides.

@Mike Barry  

Now that you know what to look for, you have a leg up.

Seller financing is no different than conventional financing on the macro level.

Ask yourself: "Would I purchase this property if I had to use a bank?"  I.e. does the deal make sense?

What in your mind is the main advantage to a seller financed deal? Is it the that it does not show up on your debt/income to a traditional lender?

This is how I profit.

Cash purchase: I will buy on cash if I can add 10% (costs to sell quickly with agents fess and other costs)  and 10% profit.  Appreciation is NEVER in the consideration.

Terms purchase: at times sub2, wrap and lease option purchase only if neighborhood, floor plan, crime rate, condition of major systems (hvac, roof, foundation, etc), and desirability are high, especially 4B 2B in the best school districts.  

Remember, the (house + neighborhood) is what retail buyers will kill for.

I like and for finding great neighborhoods.

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