Creative financing / Seller financing examples

[Greg Neuman]

I know not every deal in the world of seller / creative financing is the same.  I’m looking for real world examples to try to wrap my brain around the possibilities and options people have used in actual transactions.  Is there anyone out there that would be willing to share the details of their buy & hold deals?  I’m very interested in the terms / payments set up initially with the seller (along with contract type), the rent & estimated cash flow, and how you financed a balloon payment (details if this was the case).  I’ve done reading on the subject, but need some examples with numbers to really get my thought process working creatively.  So far I’ve only financed conventionally, and want to train myself to think creatively.   I've browsed the forums, but have not come across some of the laid out transactions that I was hoping to find.   Any examples / details are appreciated!

[Derek Dombeck]

@Greg Neuman,

There is not a set parameter to structure seller financing deals. Whatever makes sense for all parties involved is the rule. 

I bought a duplex from a man who had some medical problems and he didn't want his wife to have to deal with it if he passed away. I asked him if his wife would still like to make monthly cash flow or if she would want a chunk of cash. If she would take payments, I would give him his full asking price. After looking at the big picture, including tax consequences, he liked the idea of monthly cash flow and a balloon payment in 8 years. His wife would be retiring at that time. I let HIM pick the interest rate that he was comfortable with. HE CHOSE 3%. I ran a cash flow analysis with him and based on his current rents, the cash flow was not good enough for me to move forward unless he would accept interest only payments. He did. ( We both agreed his rents were well below market ) I gave him $5,000 down on a $132,500 sale price. ( my cash offer was $107,000 ) My monthly payment is $319 per month.

1 month later, I resold it with seller financing, using a wrap note/mort. which keeps my underlying loan in place. My terms with my buyer were $155,000 purchase price with $10,000 down and a P&I payment at 6% amortized over 30 years with a 5 year balloon. Why 5 years? That is when my buyers principal balance will equal my balloon payment on the underlying loan. 

So, I collect $869 per month and I pay $319 to the underlying for a cash flow of $550 per month. 

My buyer bought based on market rents and did in fact raise rents within 2 months of our closing. You just need to meet everyone's needs when structuring Seller financing.

Happy Investing

Derek Dombeck