Central Minnesota · Member since 2019 · 32 posts · 19 votes
If you’ve got any ideas on how to make this seller financing work, please share. :)
My wife and I are looking at purchasing a large horse property for our next home. It’s not intended to be a cash flowing investment, but it will generate a little revenue as an equine boarding facility. We are working directly with the seller and he has offered to finance it.
The seller said he would carry the 30 yr. mortgage at 5% with a balloon payment due in 5 years. He would want $100k down payment. We think we can get about $120k in proceeds from selling our current home. BUT the house needs about $45k in remodel to meet our needs. Any ideas on how to creatively finance that remodel into the deal or otherwise? Do we need to just try to convince the seller to take $75k down and pay cash for the remodel?
Contractor · Grand Marais, MN · Member since 2016 · 249 posts · 417 votes
7y
I, too, would be nervous about the balloon. If the financing is tough now, I can't imagine it will be easier in the future. Also, if I were the seller, I wouldn't allow you to subdivide. What if you sell half if the average, take the cash, and stop making payments? My primary I sold last year is in a sled dog neighborhood. I ran dogs for 18 years. It's a tough sell, except to the right person. Speaking from experience, I would keep boarding your horse, and buy a primary as close as possible. Times will change, and you will want something different. I love winter, and loved sled dogs, but it was time to move on, and seeing palm trees in January is better than I would have guessed. Liquidity is a very valuable thing, and you won't have it with a property like this. You think you will always be there, until some opportunity takes you to Kentucky, or Montana, or wherever the hose riding is even better.
I’m positive you’ll have plenty of cash to write a $700k check (let’s stay positive!) in five years, but god I hate balloons!! My bank here can get very creative (they might even do a 1st and a second to avoid pmi like in the old days!) and could get you funds for the remodel in the loan. Probably plenty of horse farms in Ohio for comps.
Don’t forget they also might allow you to use the equine income to qualify if necessary.
Owner carry can be great, but you’ll probably do better at the bank.
Seller will probably take a tax hit on anything over $500k (or even over $250k if he’s been single awhile)— so there is a good advantage for him maybe, to spread out the income over 5 years —more reason to force the terms of an owc to be way to your advantage, should you choose to go that route.
Greenstone might even let you get owner financing for a portion (avoiding PMI AND saving seller from tax hit) of the purchase, which might gain you an excellent sales price.
Stay low, my man: you never know how low he’ll go, after a year on the market, and I know you know this, but remember to stay unattached to the outcome for best negotiating. I have a tendency to get attached to beautiful properties, especially when it will make my wife happy!!
Real estate investor · Pasadena, MD · Member since 2016 · 165 posts · 258 votes
7y
I would go ahead with the owner financing with a lower down payment with the rehab money in escrow like Jay suggested. I would also add a discount off of the purchase price if I cashed out the seller before the 5th year. After completing the rehab I would begin looking to refinance the property. That gives you plenty of time to find the financing. I would ask for a 10% discount for cashing him out early.