Potential Tired Landlord looking to sell with owner financing- HELP!

11 Replies

I have a contact that called me this past March off my letter campaign that has 2 duplexes, a triplex and a SFH in my area that gross about 90-95K in rent a year. One property is actually on my street. At the initial call, he sent me a sheet with the addresses and rent info on it and wrote that he'd be interested in owner financing it. Well, at the time he wouldn't give me any idea of what he wanted for them and it basically didn't go anywhere. This past week I've been doing follow up calls, so I called before the 4th of July holiday.

He called me today and will be in the area tomorrow, wants to meet and discuss his situation. All are free and clear with the exception of one which has an ARV of 180-200K and there is 60K owed on it.

So here's the thing - I haven't the faintest idea how to approach this discussion (which i am really doing for practice with talking with sellers because I'm still out of my comfort zone with that - I didn't ask anything about price or anything else today on the phone because I need the practice of this if nothing else comes of it).  I probably would want to wholesale these off BUT could be interested in keeping them myself (or with a partner to split any cash flow).  

I've read here and heard elsewhere that with seller financing, the TERMS are where it's at and not necessarily price so I don't want to "price myself out" of this with the traditional wholesale formula if truly there is money to be made with a different, yet financially workable approach for all involved.

What questions should I ask and what should I be listening for?  

Thanks in advance for any suggestions!

Hi Christina,

This could potentially be a great wholesale or rental lead. If you are not comfortable on running your numbers, then don't make any offers during your meeting tomorrow. Just ask the seller what he is looking for. What price and terms will he be comfortable with. Get all the rental numbers from him. Gather all the information, review and process it before you give the seller any number.

You can always say that you would like to discuss all the numbers with your partner before you came back to him with any offer.

Good luck!

Hi Christina

Make sure that you get all the numbers. What is he looking for  once you get that information then go back and do your research  before you give your offer.

Christina,

Kudos to you for doing your follow up! 

What I would be listening for is anything that speaks to his cash needs. Is he cash poor, needing a big up front payment? Is he looking for extra help month to month to pay some new bills? If all else fails ask directly: what do you need to make this work for you? Thats how you'll know how to structure your terms so that everyone wins.

It will be your terms that dictate how you will make money and how much you will make. Setting these up takes some creativity and I'd suggest reaching out directly to an expert on the subject like @Grant Kemp  . He does more than sub to.

Good luck @Christina R.  , and thanks @Jerry Puckett  for the info! I'm very interested in doing something similar, so this will be a great thread to follow.

Christina, do you have an update? As always, I'm glad to pitch in where I can.

My guess is going to be that you'll be priced out due to the seller's down payment needs. Typically, in my experience, when trying to buy from landlords or other people that would consider themselves "investors", they want a 20% down payment. Unless you have the capital to cover that, it makes it quite challenging to get the deal done.

One way I've gotten around that before on a package deal like this is by buying one of the properties all cash, and the rest with owner financing along with lower down payments. I'd love to hear how y'alls meeting went though so future readers can see what goes on in these scenarios.

question?  When doing a owner financing deal.  Does it matter if the house still has a mortgage on it. Can you still do the deal if its not free and clear?

@Grant Kemp  

 - yes, I do have an update.  Sorry been a week of swim meets for my one daughter and it's just been crazy here.  @Tyrus Shivers  was nice enought to run comps for me since there have not been any dups and tris that have moved around here lately, and I figured out that for units less than 5 a comp approach- rather than an income one - was needed for any lender financing if it ended up going that route.  

Short story short - Tyrus' pricing and mine were along the same lines where you're looking at about HALF of what the seller wants.  He has these properties valued at high 200s, 300s with the highest being 375 that he WANTS on my street where I live.  Like you said, he wants 20% down.  He has taken the property back on my street once before from whomever he sold it to in 2008.  He said he wanted 6%, interest only (he said something here about doing this so it would help with "paying taxes" ?), balloon in 5 years  .  .  but he was "flexible" on down payment, % rate and whether any of it went to principal.  

Based on the rents which are NOT market - you'd have to get all properties at around $425K total and that's if they were in pristine condition.  The triplex the owner pays for everything but electric whereas on the other properties the tenants pay for everything - so the tri has about 60% in ongoing expenses rather than 50%, I would say.

This guy is not what I would say  a "motivated" seller.  He has property all over this area, he is toying with the idea of "spinning off" these 4 where I live because it's about 30 minutes away from where the bulk of his properties are - and those are apartment complexes, 15 units and up, etc., and his "real" money makers.   I'm not adverse to just telling him what investors I know would pay for these and say if it ever comes to the point you just want out, call me first.  Tyrus found one duplex that was like $400,000 that was getting $40,000 a year in rent.  

So I've heard that terms are where it's at with seller financing b ut I just don't see a way with these price points in his head that you could offer within 20% of what he wants and have some sort of deal.

Advice?

I'm on my phone or I do some cut and pasting from my old posts showing how I structure this stuff.

Just look through my old posts on land contracts to get a understanding on how I buy with seller financing and put nothing down. I get pretty detailed in the posts on scaling a portfolio thread.

There is no way I'd be interested in paying above market and putting down 20%. With that kind of down you can go to the bank if the deals are solid.

Here's the thread....

http://www.biggerpockets.com/forums/311/topics/125040-how-do-you-scale-your-business-so-quick

Really interested in what happens here, especially being right up the street from you and so trying to learn more about seller financing, potentially to use for my next residence in addition to investments. 

Brian

@Christina R. Sorry it didn't work out. Had a similar situation where an offer on 15 doors came up. Gross rent to price ratio was 0.8%. Talk about bleeding cash. On to the next.

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