First time- Seller Financing for 4plex

14 Replies

This is my first time as well posting, my apology in advance if theres possible confusion.

Anyways.. let me give you some insights. After months of speaking to seller he finally agreed to sell his fourplex as he has been self managing this multi family property. Him and his wife are in their 70's and  I asked to let me take over the property, pay some cash upfront and if he can carry the note. He wasn't planning on selling. Theres no rehab been made since he acquire it back in 2002 and haven't raise the rent. 

Heres the breakdown;

4 units

2bed/2bath

Rent $600 (under market) $750 is whats going for next door

Selling for $125k (next door fourplex sold last month $280K)

will give him $25k cash and $100k seller finance.. Now this is where i don't know what to do next? Ive read a tons of books how seller finance work and to structure it BUT what i don't know whats next after that.. after agreeing with term etc. then what?  Do  I go find real estate attorney and draw the contract or find mortgage originator and servicing company? Ive worked really hard to find this deal and don't want it to fail for not knowing what to do next.

I gladly appreciate any help and suggestions. Thank you!

Janice 

I am confused as why they would sell to you so low?  And why with all the money you are taking in after the deal that you want free advice....go get a lawyer and ask them.   I don't mind helping but really. My advice is not to buy this property if they are asking 125 for something worth 280.  It is either you taking advantage or them or there is something seriously wrong with the place.  Just my thoughts.... and yes you need a contract written by someone if you can't do it yourself online.  

In NY we use lawyers.  Here is how the process would work for me.

1.) Use my board approved purchase offer contract to get the deal on paper and "under contract"

2.) Hand the paperwork over to my attorney who will begin reviewing title.  An abstract may be ordered during this time (Can be paid by the buyer or seller).

3.) Have any/all home inspections done to make sure you're not walking into any unforeseen nightmares.

4.) If the title comes back clean then the lawyer will schedule a closing.  I would bring the down payment $ made out to the attorney who would then cut the check to the seller.  The attorney would create a mortgage note for the seller and attach it to the deed.  

5.) They then record it with the county clerk and it becomes "official".  I start making monthly payments to the seller (which is determined by an amortization schedule the attorney will create).

You'll want to make sure you have insurance on the property, and the seller will require they be added onto the policy as a beneficiary.  You'll also want to schedule utilities get switched into your name after closing.

I hope this helps 

First of all, I will never take advantage of old people nor anyone at all. I’ll pretend I didn’t see that post at all. They are tired landlord and the idea to hand over the property was ideal for them. It was their selling price and the  property has NOT been updated since 1980. It is falling apart and need a lot of work inside and out. It will cost me a good amount of time and money to put it how the next door worth which is REHABbed when it was sold.  My apology for not clarifying that part. 

Seller financing on a FSBO with people who don't know what they're doing is a recipe for disaster.

You need to find an attorney that can do the seller financing part of this.  Seller financing can get messy if the deal isn't done correctly.  Hire a broker to help with your side, he/she will be able to guide you exactly where you need to go.  It will cost you some money but it will be worth it in the end.  You would be extremely foolish to go after this deal without hiring people who know what they are doing.

I'm assuming the property is in Las Vegas - Getting a 4plex anywhere in Clark County for 125k in decent shape is a good price - even in the 89101 (at $600 rents I'm assuming your downtown).  The trouble you will likely have is in the renovation process - regardless where in the valley you are, you lose those renters or kick them and start a rehab and put a dumpster in the driveway, you have about a 99% chance you'll get bumms in there - probably within a day.  

When Brandon or the other moderators/BP employees find a great deal, it's "way to go!". Janice finds a great deal and the first two comments are all snarky. Hey Janice, ignore all these people that are being jerks. You worked hard, now get yourself a lawyer and get this under contract. But, I do have one question for you....what are the terms beyond the price (interest rate, amortization period, balloon, etc)? I only ask, because you're putting 20% down, which is what you could get from a bank. I hope the interest is also lower than what you could get from a bank. 

Way to go @Janice V. !!! I agree with @Anthony Wick 100%! Week after week we’re hearing these stories on BP podcasts and here you are proudly posting your deal and suddenly it’s elder abuse. SMH. Thanks for this posting as the answers were very educational. Congrats and good luck!

Originally posted by @Anthony Wick :

When Brandon or the other moderators/BP employees find a great deal, it's "way to go!". Janice finds a great deal and the first two comments are all snarky. Hey Janice, ignore all these people that are being jerks. You worked hard, now get yourself a lawyer and get this under contract. But, I do have one question for you....what are the terms beyond the price (interest rate, amortization period, balloon, etc)? I only ask, because you're putting 20% down, which is what you could get from a bank. I hope the interest is also lower than what you could get from a bank. 

 First thing I thought!!! It's not her problem if they don't know their property value. We also don't know the specifics. Maybe it isn't worth 280.

Originally posted by @Janice V. :

This is my first time as well posting, my apology in advance if theres possible confusion.

Anyways.. let me give you some insights. After months of speaking to seller he finally agreed to sell his fourplex as he has been self managing this multi family property. Him and his wife are in their 70's and  I asked to let me take over the property, pay some cash upfront and if he can carry the note. He wasn't planning on selling. Theres no rehab been made since he acquire it back in 2002 and haven't raise the rent. 

Heres the breakdown;

4 units

2bed/2bath

Rent $600 (under market) $750 is whats going for next door

Selling for $125k (next door fourplex sold last month $280K)

will give him $25k cash and $100k seller finance.. Now this is where i don't know what to do next? Ive read a tons of books how seller finance work and to structure it BUT what i don't know whats next after that.. after agreeing with term etc. then what?  Do  I go find real estate attorney and draw the contract or find mortgage originator and servicing company? Ive worked really hard to find this deal and don't want it to fail for not knowing what to do next.

I gladly appreciate any help and suggestions. Thank you!

Janice 

Congrats on finding a good opportunity Janice.

There are a couple ways to take this deal down:

- Via Seller Financing - seller will carry back a note against the property while title transfers to you. Make sure to get a local escrow/title company to have a clear owners title policy

- via Sub2 - similar to the above just while taking over the existing debt if there is any current loan on this property instead of creating a new note (seller financing)

- land contract - buyer & seller to sign a contract for the deed or bond for deed, a contract for the property. You dont take title in this option but but you can file a memorandum of sale on title to cloud title till you can fulfill the contract and execute the purchase

- lease + option purchase contract - so you in this option you basically master lease the property with out ownership from the current seller with an option to buy in the future. The difference between what you pay the seller and what rents you collect will be your cashflow each month. This may be a great option if the property is not currently in financeable shape but you want to take control over the property to do the work needed to be bring it to a condition that can be financed.

- you can buy it with traditional financing using 25% down payment conventional financing to purchase the property

Which option will you chose?

Originally posted by @Blair Poelman :

Seller financing on a FSBO with people who don't know what they're doing is a recipe for disaster.

You need to find an attorney that can do the seller financing part of this.  Seller financing can get messy if the deal isn't done correctly.  Hire a broker to help with your side, he/she will be able to guide you exactly where you need to go.  It will cost you some money but it will be worth it in the end.  You would be extremely foolish to go after this deal without hiring people who know what they are doing.

I'm assuming the property is in Las Vegas - Getting a 4plex anywhere in Clark County for 125k in decent shape is a good price - even in the 89101 (at $600 rents I'm assuming your downtown).  The trouble you will likely have is in the renovation process - regardless where in the valley you are, you lose those renters or kick them and start a rehab and put a dumpster in the driveway, you have about a 99% chance you'll get bumms in there - probably within a day.  

I completely agree with you! Hence, Im doing all my homework before jumping into it. I did a good amount research and spoke to a local investor who have done hundreds of deals like this over the course of decade with residential and commercial and he said that i don't need real estate attorney but escrow company who would then draw the deed of trust and promisory note. I will contact my Title company I've been using and ask a little more. 

The property is in Las Vegas yes but it is not in downtown 89101 area as you assumed. Its in low crime rate, working class neighborhood. As far as bum, in my numerous visits in the property.. Not once Ive seen a bum in the area so I'll listen to my instincts on this one.. Afterall, i did all my homework (i,e. if i cant get out of my car with my kid with me then i wont even buy it)  before even trying to acquire this property from the start. 

I really appreciate your input and will still consider it.

Originally posted by @Anthony Wick :

When Brandon or the other moderators/BP employees find a great deal, it's "way to go!". Janice finds a great deal and the first two comments are all snarky. Hey Janice, ignore all these people that are being jerks. You worked hard, now get yourself a lawyer and get this under contract. But, I do have one question for you....what are the terms beyond the price (interest rate, amortization period, balloon, etc)? I only ask, because you're putting 20% down, which is what you could get from a bank. I hope the interest is also lower than what you could get from a bank. 

Thank you, i really appreciate it. I've learned to wear thicker skin over the years plus some people say things they actually see themselves. 

In this time of Investing in real estate where the market is so competitive, as a smart investor you have to create your own deal and can't rely on just listings. Ive created relationship with this couple and i feel like i know exactly what they are looking for over the course of time i visited and talked with them, they reminded me of my parents and wanted to create a Win-Win situation for both parties... where they can enjoy their retirement now and stop fixing up/managing the property. This is my first time doing seller finance deal but not my first deal. Ive been a landlord for 8 years now between Las Vegas, NV and Scottsdale, AZ. Surprising, after all those years for not touching the seller finance. 

Janice, you didn’t mention why you aren’t going to the bank since you’re putting 20% down?

After that, it’s simple, there are tons of lawyers/title companies/payment processing companies that will help you wth seller financing.

If there are ANY kids, and the sellers are over 65 you probably want to tell them to get their own lawyer or involve their kids. I do not know how many years later they’d be able to sue for “elder abuse” whether it’s true or not. Intent may not even matter. Anyone on this website can imagine finding out their elderly parents sold their house for less than half of “what it’s worth”. If it needs $80k worth of rehab you can probably ignore this part, but take 50 pictures, maybe more.

Maybe just re-list it for $200k the day you’re under contract with an assumable contract and make a win win for the next buyer.  Then you don’t need any money or financing.