Need creative ideas on seller financing
Central Minnesota · Member since 2019 · 32 posts · 19 votes
Need creative ideas on seller financing
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Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7yEverytime I have done seller financing I always get them without balloons . Love seller financing but it’s gotta be structured Right
28 Replies
- Rental Property Investor · Twin Falls, ID · Member since 2019 · 25 posts · 11 votes7y
What's the business model for the equine facility? Can you take on a partner for that?
- Rental Property Investor · TX · Member since 2019 · 303 posts · 364 votes7y
I fail to see how this seller financing is attractive (to you) for a primary residence.
I also don't know why you think a seller would agree to tie up the property in a contingency situation when he/she could leave it on the open market and get cash.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
well what I would do is tell the seller the house needs 45k.. and since he holds the first you are improving his collateral therefore its safe for him to take a smaller down payment.
Maybe offer to escrow the rehab funds so that if you say your going to rehab but don't he can go in and grab his 25k that is not coming to him in the form of down payment
let him be in control of that 25k in some manner.. that may work.
Its just like when I tie up development ground if I have a very cautious seller.. I will offer to hand over all my due diligence and prelim engineering to the seller if I fail to close.. thereby giving them value for taking the property off the market while I go through pre lim development .. I only close once I know I have a project and about 1 out of 5 does not work and they will get 20 to 50k of my work product for free.. but for us its just cost of doing business. And its far better to lose 20 to 50k then to buy a project that wont work for any number of reasons but you wont know it does not work until yo spend the money. LOL
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
@Tom Aiello The boarding business is really quite small. Only 10 horses. It’ll maybe generate a Net of $1000/mo. We’re just looking at it as an opportunity for my wife to do something she loves at home instead of paying to board our horses somewhere else. It isn’t near profitable when factoring in the mortgage and taxes and such. Not sure it would interest a partner.
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
The seller financing appeals to us because it would allow us to purchase with less than the 20% down of a traditional mortgage. We also think we can get a better price if he stands to earn interest. (The property is listed at $790k)
It was actually the seller’s idea, not ours. He is an older guy, very well off, that moved out and has been trying to sell it for a year. He is emotionally attached to this farm - but admits he doesn’t need the money - and he wants us to buy it (he is really looking for a family to move in and keep horses there).
- Rental Property Investor · Twin Falls, ID · Member since 2019 · 25 posts · 11 votes7y
Is the $75k a substantial portion of the purchase price? Are we talking about a $300k property or a $3m property (roughly)?
Assuming it's a substantial percentage, I think you're going to have trouble getting any movement on it.
Is there any way to subdivide the property and rent or re-sell a piece of it to come up with some of the remodel costs?
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
@Jay Hinrichs that’s a GREAT idea! Thank you for the awesome input. The seller has been really accommodating and I think your angle might work with him.
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
The property is listed at $790k and we’re trying to get it for $650k or less. So the $75k would be 11.5% if we get it for that price. I think if push came to shove we would look at private lending from family for the remodel before subdividing and selling.
- Real Estate Investor · Indianapolis, IN · Member since 2014 · 316 posts · 165 votes7y
Offer him 5% more for the property but with 0% interest and 75k down.
- Rental Property Investor · TX · Member since 2019 · 303 posts · 364 votes7y
Originally posted by @Jeremy Dockendorf:
The seller financing appeals to us because it would allow us to purchase with less than the 20% down of a traditional mortgage. We also think we can get a better price if he stands to earn interest. (The property is listed at $790k)
@Jeremy Dockendorf
1) My point was that it's a 5 year balloon. You have to be 100% sure you can qualify for a bank loan in 4.5 years, otherwise you are risking your $100k, your $45k improvements and any principal you pay down in those 5 years. (You obviously don't think you'd qualify today.)
2) If this is a personal residence, I don't see why you think you need to put 20% down. Plenty of lenders will give you a loan and require less money down.
3) You can get a 30 year fixed jumbo mortgage for 4.25% now. Do you think it will be lower in 4.5 years? Is that why you are willing to pay 5% now?
4) Sellers charge a premium for seller financing, they don't discount for it.
Could you even qualify for a traditional loan if you found a lender that required 10% down?
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes7y
@Jeremy Dockendorf. I wouldn’t do this because of the 5 year balloon. That’s a bad idea. Buy this with a low money down owner occupant loan or not at all.
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
Originally posted by @Steve Hall:
Originally posted by @Jeremy Dockendorf:
The seller financing appeals to us because it would allow us to purchase with less than the 20% down of a traditional mortgage. We also think we can get a better price if he stands to earn interest. (The property is listed at $790k)
@Jeremy Dockendorf
1) My point was that it's a 5 year balloon. You have to be 100% sure you can qualify for a bank loan in 4.5 years, otherwise you are risking your $100k, your $45k improvements and any principal you pay down in those 5 years. (You obviously don't think you'd qualify today.)
2) If this is a personal residence, I don't see why you think you need to put 20% down. Plenty of lenders will give you a loan and require less money down.
3) You can get a 30 year fixed jumbo mortgage for 4.25% now. Do you think it will be lower in 4.5 years? Is that why you are willing to pay 5% now?
4) Sellers charge a premium for seller financing, they don't discount for it.
Could you even qualify for a traditional loan if you found a lender that required 10% down?
@Steve Hall
I’ll respond to your points in reverse order because it’ll make more sense to our situation.
4) In my own naivety I thought we could get a discount if he stood to make as much or more by financing it himself.
3) We are willing to pay 5% because of the assumed discount, smaller down, and no mortgage insurance.
2) True, but we thought there would be an advantage by avoiding mortgage insurance and having a smaller monthly payment.
1) Yes, we can qualify today. That isn't a concern. We've spoken with a couple lenders already and I know our DTI with this purchase would be in line. I'm not assuming rates will be lower, my assumption was based on my answer to #3 above.
I realize we aren’t the only potential buyers out there. And he probably won’t go down to 650. He’s already told us he’d do 740 (in addition to the seller financing). One challenge we’re hitting is that it is a 50 acre property and finding a jumbo loan for that acreage isn’t easy. Not that I’m not willing to look, but this all contributes to why I posed my original question. To see if there is an advantage to doing seller financing.
- Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes7y
@Caleb Heimsoth
I agree with Caleb, no way I’d do this with a balloon in 5 years . If he’s willing to carry the note for ten or fifteen that may work but I’d sure hate in 5 years, to be on the hook for over half a million dollars and be scrambling to secure funds to save my butt from losing everything . Don’t think I’d be sleeping to good over that .
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
Do you both say that because of the risk of the property value decreasing in 5 years to where I may not have enough equity to refi without paying down?
(*the seller is 77 years old and said he won’t finance for more than 5 years)
- Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes7y
Originally posted by @Jeremy Dockendorf:
Do you both say that because of the risk of the property value decreasing in 5 years to where I may not have enough equity to refi without paying down?
(*the seller is 77 years old and said he won’t finance for more than 5 years)
For me it’s the idea of the unknown lending practices of the market place .. trump will be out and the political climate may be very different from today . We could realistically be deep in a recession by then which may make lending difficult if not impossible . Without getting too political it’s a sure thing Hyper inflation from years ago will catch up to our economy in the coming years and the business climate and lending practices won’t be like today . I could easily be wrong but that’s a whole lot of money your banking on refinancing
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes7y
Originally posted by @Jeremy Dockendorf:
Do you both say that because of the risk of the property value decreasing in 5 years to where I may not have enough equity to refi without paying down?
(*the seller is 77 years old and said he won’t finance for more than 5 years)
I am not against balloon payments but not for a primary residence. You are trying to justify this property as an investment when it’s not, it’s a primary house. You are buying it to indulge your wife’s horse, hobby. That’s fine but this is not an investment.
You can see since it’s been on the market for a year when the balloon comes due you can only refinance as selling will likely tske to long. I doubt you’ll have 700k to just write a check.
Nothing you say will chAnge my mind that seller financing here is a good idea. Good luck.
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
@Dennis M. appreciate the insight. A valid concern I should be weighing.
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
Originally posted by @Caleb Heimsoth:
Originally posted by @Jeremy Dockendorf:
Do you both say that because of the risk of the property value decreasing in 5 years to where I may not have enough equity to refi without paying down?
(*the seller is 77 years old and said he won’t finance for more than 5 years)
I am not against balloon payments but not for a primary residence. You are trying to justify this property as an investment when it’s not, it’s a primary house. You are buying it to indulge your wife’s horse, hobby. That’s fine but this is not an investment.
You can see since it’s been on the market for a year when the balloon comes due you can only refinance as selling will likely tske to long. I doubt you’ll have 700k to just write a check.
Nothing you say will chAnge my mind that seller financing here is a good idea. Good luck.
You sound a little adversarial. I have no intention of trying to convince you that seller financing is a good idea. I’m glad you’re telling me it’s a bad idea. That’s why I’m here.
You’re half right - it’s not an investment, but maybe you’re misinterpreting my post. I don’t think I’m trying to justify it as an investment. Like I said, yes - it will be our primary residence, and yes - it is to indulge my wife’s hobby. This property will always be a liability, not an asset - and I’m ok with that.
I’m just asking if anyone has creative ideas to help me figure out a way to finance the property and the remodel. It sounds like traditional lending might be my best option.
I appreciate your input.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes7y
Originally posted by @Jeremy Dockendorf:
Originally posted by @Caleb Heimsoth:
Originally posted by @Jeremy Dockendorf:
Do you both say that because of the risk of the property value decreasing in 5 years to where I may not have enough equity to refi without paying down?
(*the seller is 77 years old and said he won’t finance for more than 5 years)
I am not against balloon payments but not for a primary residence. You are trying to justify this property as an investment when it’s not, it’s a primary house. You are buying it to indulge your wife’s horse, hobby. That’s fine but this is not an investment.
You can see since it’s been on the market for a year when the balloon comes due you can only refinance as selling will likely tske to long. I doubt you’ll have 700k to just write a check.
Nothing you say will chAnge my mind that seller financing here is a good idea. Good luck.
You sound a little adversarial. I have no intention of trying to convince you that seller financing is a good idea. I’m glad you’re telling me it’s a bad idea. That’s why I’m here.
You’re half right - it’s not an investment, but maybe you’re misinterpreting my post. I don’t think I’m trying to justify it as an investment. Like I said, yes - it will be our primary residence, and yes - it is to indulge my wife’s hobby. This property will always be a liability, not an asset - and I’m ok with that.
I’m just asking if anyone has creative ideas to help me figure out a way to finance the property and the remodel. It sounds like traditional lending might be my best option.
I appreciate your input.
You’re right it did come across a little abrasive and that isn’t my main intention, so I apologize for that.
I guess my main point was you acknowledge it’s not an investment (that’s good, we agree there) but then where we disagree is youre trying to apply investment financing (like seller financing with balloon payments) to something you just said isn’t an investment.
Obviously you can do this if you want, but I think it’s a bad idea. Just like I generally think getting a HeLoc on your house to invest is usually a bad idea, but people do that all the time too.
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
Originally posted by @Caleb Heimsoth:
Originally posted by @Jeremy Dockendorf:
Originally posted by @Caleb Heimsoth:
Originally posted by @Jeremy Dockendorf:
Do you both say that because of the risk of the property value decreasing in 5 years to where I may not have enough equity to refi without paying down?
(*the seller is 77 years old and said he won’t finance for more than 5 years)
I am not against balloon payments but not for a primary residence. You are trying to justify this property as an investment when it’s not, it’s a primary house. You are buying it to indulge your wife’s horse, hobby. That’s fine but this is not an investment.
You can see since it’s been on the market for a year when the balloon comes due you can only refinance as selling will likely tske to long. I doubt you’ll have 700k to just write a check.
Nothing you say will chAnge my mind that seller financing here is a good idea. Good luck.
You sound a little adversarial. I have no intention of trying to convince you that seller financing is a good idea. I’m glad you’re telling me it’s a bad idea. That’s why I’m here.
You’re half right - it’s not an investment, but maybe you’re misinterpreting my post. I don’t think I’m trying to justify it as an investment. Like I said, yes - it will be our primary residence, and yes - it is to indulge my wife’s hobby. This property will always be a liability, not an asset - and I’m ok with that.
I’m just asking if anyone has creative ideas to help me figure out a way to finance the property and the remodel. It sounds like traditional lending might be my best option.
I appreciate your input.
You’re right it did come across a little abrasive and that isn’t my main intention, so I apologize for that.
I guess my main point was you acknowledge it’s not an investment (that’s good, we agree there) but then where we disagree is youre trying to apply investment financing (like seller financing with balloon payments) to something you just said isn’t an investment.
Obviously you can do this if you want, but I think it’s a bad idea. Just like I generally think getting a HeLoc on your house to invest is usually a bad idea, but people do that all the time too.
A fair assessment. Thanks again
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes7y
Originally posted by @Jeremy Dockendorf:
Originally posted by @Caleb Heimsoth:
Originally posted by @Jeremy Dockendorf:
Originally posted by @Caleb Heimsoth:
Originally posted by @Jeremy Dockendorf:
Do you both say that because of the risk of the property value decreasing in 5 years to where I may not have enough equity to refi without paying down?
(*the seller is 77 years old and said he won’t finance for more than 5 years)
I am not against balloon payments but not for a primary residence. You are trying to justify this property as an investment when it’s not, it’s a primary house. You are buying it to indulge your wife’s horse, hobby. That’s fine but this is not an investment.
You can see since it’s been on the market for a year when the balloon comes due you can only refinance as selling will likely tske to long. I doubt you’ll have 700k to just write a check.
Nothing you say will chAnge my mind that seller financing here is a good idea. Good luck.
You sound a little adversarial. I have no intention of trying to convince you that seller financing is a good idea. I’m glad you’re telling me it’s a bad idea. That’s why I’m here.
You’re half right - it’s not an investment, but maybe you’re misinterpreting my post. I don’t think I’m trying to justify it as an investment. Like I said, yes - it will be our primary residence, and yes - it is to indulge my wife’s hobby. This property will always be a liability, not an asset - and I’m ok with that.
I’m just asking if anyone has creative ideas to help me figure out a way to finance the property and the remodel. It sounds like traditional lending might be my best option.
I appreciate your input.
You’re right it did come across a little abrasive and that isn’t my main intention, so I apologize for that.
I guess my main point was you acknowledge it’s not an investment (that’s good, we agree there) but then where we disagree is youre trying to apply investment financing (like seller financing with balloon payments) to something you just said isn’t an investment.
Obviously you can do this if you want, but I think it’s a bad idea. Just like I generally think getting a HeLoc on your house to invest is usually a bad idea, but people do that all the time too.
A fair assessment. Thanks again
The Balloon nixes the deal. Too many unknowns for the future.
- Rental Property Investor · Flint, MI · Member since 2018 · 60 posts · 43 votes7y
@Jeremy Dockendorf I do bookkeeping professionally for horse farms and trainers. Many of my clients have gone to Greenstone Farm Credit Services. They specialize in farm mortgages and the large parcels of land. They will also incorporate a construction type loan you can work into your loan package for the remodel. It’s worth looking into.
- Central Minnesota · Member since 2019 · 32 posts · 19 votes7y
@Pamela Morrison Thank you! I will definitely check them out.
- 7yChristi HawkinsPro MemberColumbus, OH · Member since 2017 · 237 posts · 142 votes
@Jeremy Dockendorf If you move forward with the Seller Financing another thing you may want to consider before you refinance it is to split it into a couple parcels. We used to do this all the time when we had a house with a lot of land. 5-10 acres with the house would be perfect if you can get the value you need. Fannie Mae & Freddie Mac don't like land and if your wife's hobby turns into income, keep that separate, you will run into trouble with them as well if it's an income producing property.
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