Structuring Seller Financing

5 Replies

Hey guys - NJ newbie here! Looking at a 5 family for sale by owner, and planning to speak with the owner tomorrow. Thinking to see if I can get the owner to consider seller financing. If the owner was open to such an option, could you please suggest possible structures that are typically appropriate when it comes to seller financed deals? Thanks so much! 

Check out: Chad Carson - Seller Financing

Questions to consider asking:

- Do they own it free and clear? 

- Why is it for sale by owner? (could be helpful to know)

- If they will seller finance, what % downpayment would they want/need?

- How long are they willing to seller finance? 

Most sellers do not want to think about the property for another 30 years. You could suggest a 30 yr amortization but a 10 year balloon payment. Good luck!

@Helen M Leyzerovich

Check out your state templated real estate contracts. In Texas, we have TREC which has a seller financing addendum that describes the most common ways seller financing is structured. 

It's a great strategy that we have implemented many times. Best of luck!

Exactly what @Colton Fairchild said.

I have made over 75 cold calls in the last year as there are almost NO MF listings on our area that make financial sense.

I finally found 3 interested in selling, and one ONLY with Seller Financing. I know this guy a bit as we are both in construction in our local area, so it was an easy conversation. He came right our with: Only if he can carry the note. This was to avoid realtor fees, spread his capital gains over a long time frame, and make a decent return on his equity (they are paid in full) over a long term. I *think* he sees this as 'the safe part of his portfolio', like Bonds or CDs.

We are working on down payment amount, he wants enough to cover his depreciation recapture taxes. 5% ish on rate, and probably amortize over 30 years with a 15 year balloon. I want to add a clause that if mutually agreeable we could renegotiate to extend it if desired.

As a side note, we would be buying this through an LLC that is made up of three SOLO401Ks meaning the funding needs to be Non-Recourse. A huge advantage for us is that most commercial non-recourse loans need 40-50% down. We are probably in the 15-20% range!