Seller Financed Deal - What am I missing?

23 Replies

Hey community,

I have a verbal agreement with a seller to buy his property with seller financing.  This is my first deal with seller financing so I would like to know if there's anything I'm missing.  

Details:

- Multifamily: 4plex

- Purchase price: $260k

- Down Payment: $20k

- Interest Rate: 5% amortized over 30 years.

1.  See the insides of property myself.

2.  Hire an inspector.

3.  Hire a lawyer

4.  Write out contract with lawyer

5.  Send seller the contract

6.  Contract gets signed by both parties

7.  I go to a title company and claim the property is mine?? (a little clueless on this step)

8.  Property is mine?

Am I missing anything?  Is my order of operations valid?  Anyone have experience with seller financed deals.

OK I think you're getting the (important) horse in front of the cart.

What's the place worth. I've sold about 40 places on seller financing and I always charged ABOVE MARKET PRICE for my properties.

What's the current (verified) rent on each unit?

What's the potential rent?

What's the term of the leases?

The loan is AMORTIZED over 30 years, but is it a 30 year loan or is there a balloon?

On the information you've provided it's a good potential deal; loan down payment, good interest rate. But it sounds like you're at the initial stage of things. Maybe one phone call with the seller in to it.

Should have added above: the numbers fit the criteria I'm looking for.  Everything about the property is solid.  I'm asking in regards to the process of 'officially' buying the property.

I think you're overthinking it. there's probably not a need to have a lawyer draft the contract unless you are worried that there might be litigation later. I could share one with you that I had a lawyer draft a couple years ago and have since use a dozen times. but once you get past the contract, the title company does all the work as normal. note.. bring your down payment to closing. don't give it to him in advance. also, make sure you arrange how you're going to pay it. I find this to be very important, mostly because I don't want to get into an argument about when I put a check in the mail or anyting. I suggest you deposit it into his account either electronically or physically every month

Thanks Adam.  Do you mind PM'ing the contract over?  Also thanks for suggestion on how to pay, haven't thought that through yet.

@Spencer Cornelia   I don't think this question was answered from an above post, but is there a balloon on the deal?  I'm surprised a seller would do 30 years.  I've done a few (buying), and generally always 30 year amort, but a 5 year balloon.  That's critical because if keeping the property, you'll have to refinance it.

Also agreed with the above posts, the paperwork is fairly simple.  VT is an attorney state so the attorney created the note and closed escrow, about $1k total for legal fees.

@Tom S. I mentioned a balloon payment to the seller as a common practice in seller financed scenarios last night on the phone since this seems like such a home run I'm hesitantly worried lol (the agreement is 30 year amortization at this moment).

$1k not bad.  That's around what I'm expecting.  I really just need to get the contract written.

Missing the type of seller financing.

Doesn't matter how good the deal is if you have no ownership.

No LCs or CFDs.  Do some digging and good luck.

@Grant Rothenburger great idea, didn't even consider it.  Did you have a recommendation for how I can go about finding a real estate lawyer who can handle something like this.

I would for sure hire a real estate lawyer for this transaction-maybe form an LLC too? Get financial statements review them and hand them to your tax guy-if you don't have one now is a good time to get one. Have a very thorough inspection done by a licensed inspector. If there is no listing agent be very thorough at every step-you are unlikely to get proper disclosures from an owner.

I would also look into a mortgage servicing company to handle payments. That way they can pay the insurance/taxes and also send the seller their $$ every month. You don't have to worry about seller saying he never got the check in the mail or any of that nonsense. 

@Nolan M. I was wondering how the payments would work.  You knew what my next question would be haha. Any recommendations on a service?

@Grant Rothenburger I'm meeting with a lawyer today.  He mentioned he will be able to take care of all the taxes, escrow stuff as he has experience with real estate law.  Thanks for the advice.

I spoke with the seller last night and he's still good to move forward.  If this goes through, I struck gold on my first investment deal.  Rents are now $200 higher than calculated and the market is so hot the value of the property may be more than I'm paying (we agreed ~December 20th on the deal).

Originally posted by @Steve Vaughan :

Missing the type of seller financing.

Doesn't matter how good the deal is if you have no ownership.

No LCs or CFDs.  Do some digging and good luck.

This is critical advice right here.

You see the seller as the mortgage company, the seller might be thinking you're "rent to own" buyer. Big difference in ownership

More reason to pony up for a thorough lawyer.

I use The Servicing Group for one of my loans that I have with a small credit union. They’ve been fine, no issues.

Originally posted by @Spencer Cornelia :

@Nolan M. I was wondering how the payments would work.  You knew what my next question would be haha. Any recommendations on a service?

@Grant Rothenburger I'm meeting with a lawyer today.  He mentioned he will be able to take care of all the taxes, escrow stuff as he has experience with real estate law.  Thanks for the advice.

I spoke with the seller last night and he's still good to move forward.  If this goes through, I struck gold on my first investment deal.  Rents are now $200 higher than calculated and the market is so hot the value of the property may be more than I'm paying (we agreed ~December 20th on the deal).

 Awesome and congrats! Happy I could help.

You are missing some key components in the Note and Mortgage. Be sure to discuss prepayment penalties and or discounts, possible extensions of balloon payment, lenders title insurance, minimum property insurance limits, how the interest compounds or if it is simple interest, and also a due on sale clause. I avoid due on sale clauses as I like to resell subject to or using Wrap Around Loans.

I would also suggest buying in an entity and try NOT to personally guarantee the note. This way the sellers recourse in a foreclosure situation would be limited to taking the property back and possibly getting a judgement against the entity, but not you personally.

Happy Investing

Derek Dombeck

@Derek Dombeck I decided to get a solid real estate lawyer to assist with all of this.  I'm going to add in the contract to not have pre-payment penalties.   I wasn't aware of all of the other things you mentioned.


I setup an LLC through the lawyer to purchase the property. Was against it at first, but decided it would be best (for numerous reasons).

Thanks for the help.

@Spencer Cornelia Can you share what type of seller financing contract you are going with?  I've got a potential to do my first seller financed deal, but running into road blocks to find what type of contract to use.  I've talked to one real estate lawyer, but going to try another since they didn't seem to fully understand what I was trying to accomplish.  Based on my reading on BP it sounds like many people go with deed of trusts to get title and refinance later.


@Adam Stacey   Would you be willing to share information on your contract?

@Greg Neuman The first lawyer I met up with seemed perfect and mentioned both him and his partner have been dealing with Real Estate Law in Vegas for up to 20 years.  He will be able to do the closing and all the stuff I'm unfamiliar with (opening/closing escrow, dealing with title, etc.)

Here's text straight from the contract:
"Buyer to execute a promissory note secured by deed of trust for $240,000 at 5% per annum...."

@Derek Dombeck Thanks for offering advice.  If you don't mind I'll try you this afternoon to discuss.

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