Help crafting a seller financing deal

2 Replies

Good Evening All,

While this is my first post to this site, I have been reading a variety of posts over the last few months.  I am a buy and hold investor with two units under my belt for the last 15 years.  I am looking to expand my portfolio.  When I purchased that property it was through a conventional loan, so I don't know much about being creative with financing.  I would like some advice on the following prospective purchase:

5unit+6 garages (all occupied) for sale in Philadelphia for 297k

Monthly income 4100/mo.

Owner will consider financing part of the deal. I am asking for help in coming up with the terms. I would like to be able to bring an offer to the table and negotiate from there.

I have access to a $100k line of credit that I am using to acquire properties.  I would like to use as little cash out of pocket as possible.  What is a reasonable offer?

I appreciate any help you can offer.

A "Reasonable" offer is going to be determined by the details of the property and how motivated the seller is. If the seller is simply wanting to rid of headaches of the property, they may be willing to finance for 3-5% interest, but if they are trying to maximize investment they may want 10% or more interest. 

You could use your 100k and have the seller finance the rest of the property for the next several years and then refinance the property and pull out cash. 

Victoria, I would run the numbers as mentioned above it often depends on the facts and circumstances of the property and buyer and seller preferences..

But just off the top of my head, I would think about some common terms from both a commercial and even residential context (as you are on the border here with a 5 unit). Plus, the seller may also be thinking of common standards......

For example, would a 20% down payment and 10 year balloon note (but possibly with 30 year am) work? The 10 year gives the seller confidence of getting cash back fairly soon--with some interest in the meantime. But the 30 year am rate lets you cash flow until you find other finance options or pay it off. The rate may depend on your credit profile, but I would start with feeling out the seller (explain whether 3%, 5% or 7% they are getting much more than money sitting in the bank and have a secured first mortgage)....

Plus, as a bonus, really explore whether you could (I know it sounds counterintuitive) undergo work to make it a  4 unit--possible addition by subtraction renovation (with all permits and licensed work) simply because this allows you into a much wider range of financing and buyers.... Or even possible refinancing into a true 30 year fixed at a very low rate and favorable government agency terms.

I use a title company and their lawyer for a professional standard docs and closing on owner financing--gets all the recording and escrow set up clearly and properly. A plus for buyer and seller, so think about those terms in the offer (and seek professional advice from people who have done these before).