Buying a portfolio on seller finance

Member since 2025 · 6 posts · 1 vote

My partner and I are acquiring 10 multifamily properties (21 units) on seller finance and all are rented about $300 below market value. Four and the residential building have loans. We want to turn them into STR. He's a contractor and property manager and I'm a wholesaler. This seems like a good opportunity. There's a wealth of knowledge on BP. Can anyone offer advice on this idea and maybe some pitfalls to avoid?

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Quote from @Travis Delo:

We've had three separate groups approach us in the past two weeks who did something very similar: seller financed small multifamily portfolios, all with plans to reposition or convert units. Unfortunately, all three are now stuck.

The common thread? They overpaid on seller financing terms, assumed higher rents than they could achieve, and didn't budget enough for repairs or capex. Now they cannot refinance out because the properties will not appraise, the DSCR does not work, and they are tight on cash.

Seller financing can be a creative way to get in, but it is often treated like a shortcut. In reality, it needs just as much underwriting discipline and exit planning as any other structure. Without a clear path to refinance or real liquidity for renovations, it is easy to get boxed in.

I would encourage you to run stress tests:

What if rents stay flat for 12 to 18 months?

What if refinance rates are still high when the balloon hits?

Do you have reserves or backup financing for the rehab?

There is plenty of upside in these deals, but only if the downside is planned for in advance.

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
1y
@Travis Delo
if some of the properties have loans, then you won't be able to acquire them entirely on seller finance.
how will the loans be handled?
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- Travis Delo
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  Member since 2025 · 6 posts · 1 vote
  1y
  @Nicholas L. I was thinking lease-option until the mortgage was paid as not to disturb or trigger any action on the title.
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Michael SmytheBusiness Member
Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
1y
Why are rents $300 below market value?
- Maybe seller is too lazy to raise rents?
- Maybe properties are in disrepair?
- How many tenants will you lose raising rents?
Who is going to make the loan payments to avoid foreclosure?
- Seller? They could take the money and not pay.
- Buyer? Could collect rents and not pay.
What about insurance that covers both buyer & seller?
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- Travis Delo
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  Member since 2025 · 6 posts · 1 vote
  1y
  @Michael Smythe rent are only because the prior landlord never raised rents and the properties are def liveable but needs cosmetic work definitely. The plan is to raise rents one unit at a time and if we lose a tenant it would be a good time to renovate the unit into a STR.
  
  I definitely need to come up with a plan on action for the units with loans.
  
  Thanks for your insight.
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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
1y
Have you underwritten the properties you want to convert to STR? I am not an expert in MS but I would check demand, pricing, and vacancy rates to make sure it is a viable idea.

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- Travis Delo
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  Member since 2025 · 6 posts · 1 vote
  1y
  @Andrew Steffens Thanks you fir the advice. I have looked into similar str's in the area. I'm seeing an average of 200 to 350/night which is about 3-4x the monthly rent.
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Andrew Street
Member since 2019 · 1k+ posts · 292 votes
1y
Sounds like a solid opportunity, especially with seller financing and built-in value. Just make sure to check local STR regulations, run solid cash flow projections with realistic occupancy, and account for management time and turnover costs. STRs can be great but are operationally intensive. Also, have backup plans in case zoning or demand shifts. Good luck!
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- Travis Delo
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  Member since 2025 · 6 posts · 1 vote
  1y
  @Andrew Street thanks you the advice
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Travis Delo:

My partner and I are acquiring 10 multifamily properties (21 units) on seller finance and all are rented about $300 below market value. Four and the residential building have loans. We want to turn them into STR. He's a contractor and property manager and I'm a wholesaler. This seems like a good opportunity. There's a wealth of knowledge on BP. Can anyone offer advice on this idea and maybe some pitfalls to avoid?
We've had three separate groups approach us in the past two weeks who did something very similar: seller financed small multifamily portfolios, all with plans to reposition or convert units. Unfortunately, all three are now stuck.
The common thread? They overpaid on seller financing terms, assumed higher rents than they could achieve, and didn't budget enough for repairs or capex. Now they cannot refinance out because the properties will not appraise, the DSCR does not work, and they are tight on cash.

Seller financing can be a creative way to get in, but it is often treated like a shortcut. In reality, it needs just as much underwriting discipline and exit planning as any other structure. Without a clear path to refinance or real liquidity for renovations, it is easy to get boxed in.

I would encourage you to run stress tests:
What if rents stay flat for 12 to 18 months?
What if refinance rates are still high when the balloon hits?
Do you have reserves or backup financing for the rehab?
There is plenty of upside in these deals, but only if the downside is planned for in advance.

7e investments53 Reviews
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Travis Delo
OP
Member since 2025 · 6 posts · 1 vote
1y
@Chris Seveney Thanks and i appreciate the much-needed advice. Let me give more context. The terms have no interest, principle only and the principle would be equal to about half of the current rent. We would only raise rent on one unit at a time because this is definitely risky. The seller hasn't mentioned a ballon b/c the note is under 10 years. We really don't have the reserves, but I do have a property that I own free and clear valued between 160k to 189k if absolutely necessary. I would do a mini mortgage with my partner. We have also accounted for PITI (no interest), cap ex, vacancy rate, and maintenance since they would start as LTR. Rehab would not be needed upfront because their all rented, and the PM and GM is my business property and best friend. He has managed them for years, so he knows them in and out. The deal was offered to him (Tired Landlord) and he wanted to go into business with me. I agree the upside is too great to pass on by more planning is needed.
Knowing the context, would that change anything?
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