First seller financing deal.

[Chad Hurin]

Hi BP. Just became PRO.. woo..

I am viewing a property tomorrow that the seller is offering seller financing. I was thinking, If I go through with this deal, It will be my first investment property as well as first time using seller financing. I understand the concept and some steps of seller financing but would like to know what to expect. So, we go back and forth about price/terms of loan/etc but after in contract... where from there? How to pay ernest money for contract? Do I even pay ernest money? is there escrow accounts? Does seller and i go to a lawyer? What to I expect in terms of paperwork? And any other steps?

I just had thought of, 'what if i pay the seller ernest money and/or the down payment and i never see them again'. I know theres a process so i guess I'm asking so ill know ahead of time.

I know I'm going to look back at the forum post and laugh. Sorry : )

Thank you BP!

Chad

1. ps. If anyone was interested or could evaluate. details on property...
2. $70,000, 955 sqft, SFH, 2/1, HOA: 11$
3. tenant occupied w/ $820 (good rental and repair history) lease ends Nov.
4. taxes $900
5. Loan term:
6. 7K down 63k financed @ 5% for 25 year amortized
7. calc says cash flow= $124 and COC ROI=21%
8. What do you think? 

[Bill Gulley]

Originally posted by @Chad Hurin:

Hi BP. Just became PRO.. woo..

I am viewing a property tomorrow that the seller is offering seller financing. I was thinking, If I go through with this deal, It will be my first investment property as well as first time using seller financing. I understand the concept and some steps of seller financing but would like to know what to expect. So, we go back and forth about price/terms of loan/etc but after in contract... where from there? How to pay ernest money for contract? Do I even pay ernest money? is there escrow accounts? Does seller and i go to a lawyer? What to I expect in terms of paperwork? And any other steps?

I just had thought of, 'what if i pay the seller ernest money and/or the down payment and i never see them again'. I know theres a process so i guess I'm asking so ill know ahead of time.

I know I'm going to look back at the forum post and laugh. Sorry : )

Thank you BP!

Chad

1. ps. If anyone was interested or could evaluate. details on property...
2. $70,000, 955 sqft, SFH, 2/1, HOA: 11$
3. tenant occupied w/ $820 (good rental and repair history) lease ends Nov.
4. taxes $900
5. Loan term:
6. 7K down 63k financed @ 5% for 25 year amortized
7. calc says cash flow= $124 and COC ROI=21%
8. What do you think? 

First off, anyone offering seller financing usually has the property overpriced! 70K for a 955 ft 2/1 would be high in my market, but I don't know yours, first comp it out.

While current rents is a good indicator, you have no idea of any rent concessions or the details of how that lease came about. Look to what market rents are, not so much to the lease that you're about to lose.

If this is not listed you can usually get past earnest money or a small amount, but it may not matter in reality since financing is provided, you won't have any out except as to inspection, an estoppel letter to the tenant and title.

First come to basic terms of the note, if terms aren't acceptable then the time and expense of getting to a price will be wasted. 

Then work on price and ensure you are not overpaying, financing does NOT add value to RE.

Contract with note terms attached. That can go to your title company and they will have an escrow for funds if required.

I suggest too that on a rental, you contract with the price of the lot stated and the price of improvements, you can put the lot value on the shy side a bit if reasonable, this sets up your position for depreciation of improvements.

Search "loan servicing" on BP, I strongly suggest you have the note professionally serviced, it will guard against shady SF seller practices of tossing a payment in the trash and calling the note due. There are benefits to both, so any objection should be a red flag.

Search costs of servicing, either party can pay servicing expenses or both.

He probably has an attorney, he is represented but you aren't but in settlement the attorney will act as a trustee, the attorney needs to have an insured closing letter from the title company providing title coverage showing that the settlement is also insured. I'd rather use a title company.

You'll need hazard insurance, a policy or paid receipt with coverage effective on or before the settlement date, first year coverage is most common.

You generally won't have tax and insurance escrows with a seller financed deal, a servicer will charge more but you can if you want to.

Note terms, make sure you have the ability to obtain 30% equity prior to any balloon, no pre-payment penalty, no points on a seller financed note as it is funded with equity, it's not a cash loan.

You can ask a title company what disclosures are required, being a rental you may not have residential disclosures but I would ask for them via the contract.

You need certified funds to take to settlement, the closing agent will tell you the amount.

You'll sign a note and deed of trust and a HUD-1 statement most likely and tax related documents.

After settlement, contact your tenant and give them instructions for rents, you're now a landlord. Good luck :)