Any ideas on how to make this seller finance deal work?
Member since 2021 · 33 posts · 13 votes
Any ideas on how to make this seller finance deal work?
Most Popular Reply
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y@Chris B.
Watch this video- explains it well - either get terms or price - so probably paying a lot more
Also many of these fail because the low down payment the borrower does not have the funds to cover routine maintenance, capex or vacancy.
https://youtu.be/0g9ct2dHtCg
7e investments53 Reviews
17 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Aidan Birmingham
What’s your down payment? Put more money down.
7e investments53 Reviews - Member since 2021 · 33 posts · 13 votes3yWe did not discuss a down payment. I was planning on offering $5000 when we have our follow up call.
Quote from @Chris Seveney:
@Aidan Birmingham
What’s your down payment? Put more money down.
- Member since 2023 · 122 posts · 68 votes3y
At 4.5% and 20% down this would cashflow nicely at 30yr amortization. In the owner finance, deals I've done, the owner became very friendly and flexible when I offered 20 - 25% down.
1. You could you borrow the 20% down from another source then pay them back plus some interest in four years from the equity and a piece of the monthly cashflow.
2. Ask the owner to carry the downpayment for four years during which time you give him $500 of the cashflow for four years or until you can refi out.
3. Work your but off until you can get the $46k and come back ready to wheel and deal. You may be able to negotiate the price down some more when the seller sees your serious business.
BTW: I'm assuming it's a nice deal in a good area. I'd like to know more about this property and it's location because these are knee-jerk reactions.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
My SF deals are almost all the same:
10% DP
4% interest over 30
15 year balloon
Offer 10% under PVRemember, the interest is extra profit for the seller. 4% over 15 years more than makes up for the 10% reduction in offer.
Also, I always make the offer from an LLC. That way, I can sell the LLC carrying with it my original terms, to another investor...much like selling a note.
- Member since 2021 · 33 posts · 13 votes3y
Quote from @Joe Villeneuve:
My SF deals are almost all the same:
10% DP
4% interest over 30
15 year balloon
Offer 10% under PVRemember, the interest is extra profit for the seller. 4% over 15 years more than makes up for the 10% reduction in offer.
Also, I always make the offer from an LLC. That way, I can sell the LLC carrying with it my original terms, to another investor...much like selling a note.
I am planning on proposing this:
- Sale Price: $230,000
- Down Payment: $5000
- Loan Amount: $225,000
- Interest Rate: 3%
- Loan Term: 40 years (480 months)
- Interest-only for the first 2 years
I am considering offering $240,000 also. Only push back I see is the down payment, int rate and possible length of loan. - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesGo for it.
Quote from @Aidan Birmingham:
Quote from @Joe Villeneuve:
My SF deals are almost all the same:
10% DP
4% interest over 30
15 year balloon
Offer 10% under PVRemember, the interest is extra profit for the seller. 4% over 15 years more than makes up for the 10% reduction in offer.
Also, I always make the offer from an LLC. That way, I can sell the LLC carrying with it my original terms, to another investor...much like selling a note.
I am planning on proposing this:
- Sale Price: $230,000
- Down Payment: $5000
- Loan Amount: $225,000
- Interest Rate: 3%
- Loan Term: 40 years (480 months)
- Interest-only for the first 2 years
I am considering offering $240,000 also. Only push back I see is the down payment, int rate and possible length of loan. As someone who has no experience with owner financing, I'm curious why an owner would accept 3% or 4% when they can flat out sell the property, invest the money and make maybe 10% in the markets? Why not at least charge close to current mortgage rates if not slightly under at around 7%? I know 10% isn't guaranteed, but pretty darn likely. QYLD will give this fairly consistently. (I'm not advocating it as a best fit investment for everyone; just an example) 3 or 4 percent is below inflation. Do they sell it for an above market price to compensate?
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Chris B.
Watch this video- explains it well - either get terms or price - so probably paying a lot more
Also many of these fail because the low down payment the borrower does not have the funds to cover routine maintenance, capex or vacancy.
https://youtu.be/0g9ct2dHtCg
7e investments53 Reviews - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesAre you talking 10% every year (laughable), or an average of 10%/yr (which isn't the same thing at all? This is where percentages lie. 4% in RE is a greater return than 10% in the SM,...and that 4% is locked in, but the 10% in the SM is not locked in, and is an illusion.
Quote from @Chris B.:
As someone who has no experience with owner financing, I'm curious why an owner would accept 3% or 4% when they can flat out sell the property, invest the money and make maybe 10% in the markets? Why not at least charge close to current mortgage rates if not slightly under at around 7%? I know 10% isn't guaranteed, but pretty darn likely. QYLD will give this fairly consistently. (I'm not advocating it as a best fit investment for everyone; just an example) 3 or 4 percent is below inflation. Do they sell it for an above market price to compensate?
- Member since 2021 · 33 posts · 13 votes3yThanks a lot for the input! The seller recently updated me that he is looking for a 10 year term because he does not want to leave the agreement for his kids. What is the best way to structure this agreement with a 10 year term? Is there a strategy to make this work?
Quote from @Joe Villeneuve:
Go for it.Quote from @Aidan Birmingham:
Quote from @Joe Villeneuve:
My SF deals are almost all the same:
10% DP
4% interest over 30
15 year balloon
Offer 10% under PVRemember, the interest is extra profit for the seller. 4% over 15 years more than makes up for the 10% reduction in offer.
Also, I always make the offer from an LLC. That way, I can sell the LLC carrying with it my original terms, to another investor...much like selling a note.
I am planning on proposing this:
- Sale Price: $230,000
- Down Payment: $5000
- Loan Amount: $225,000
- Interest Rate: 3%
- Loan Term: 40 years (480 months)
- Interest-only for the first 2 years
I am considering offering $240,000 also. Only push back I see is the down payment, int rate and possible length of loan. - Member since 2021 · 33 posts · 13 votes3yThanks a lot for the input! The seller recently updated me that he is looking for a 10 year term because he does not want to leave the agreement for his kids. What is the best way to structure this agreement with a 10 year term? Is there a strategy to make this work?
Quote from @William Powell:
At 4.5% and 20% down this would cashflow nicely at 30yr amortization. In the owner finance, deals I've done, the owner became very friendly and flexible when I offered 20 - 25% down.
1. You could you borrow the 20% down from another source then pay them back plus some interest in four years from the equity and a piece of the monthly cashflow.
2. Ask the owner to carry the downpayment for four years during which time you give him $500 of the cashflow for four years or until you can refi out.
3. Work your but off until you can get the $46k and come back ready to wheel and deal. You may be able to negotiate the price down some more when the seller sees your serious business.
BTW: I'm assuming it's a nice deal in a good area. I'd like to know more about this property and it's location because these are knee-jerk reactions.
- Member since 2023 · 122 posts · 68 votes3y
10 years would make your payment sky high. Probably too high to cash flow. Plus you are doing a small downpayment. I'd be careful here seeing you are new. There are people out there who prey on newbies. They set you up under unfavorable terms (acting like they are a mentor or older brother) only to take the property back after a year because you can't make the high payments. The seller would end up getting what is essentially rent from you, all the while betting on you defaulting. You'd be breaking your back and your piggy bank trying to spruce up the place and rent it, struggling your butt off to the point of health problems. Be careful my friend
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesExtremely low interest rate...or walk away.
Quote from @Aidan Birmingham:
Thanks a lot for the input! The seller recently updated me that he is looking for a 10 year term because he does not want to leave the agreement for his kids. What is the best way to structure this agreement with a 10 year term? Is there a strategy to make this work?Quote from @William Powell:
At 4.5% and 20% down this would cashflow nicely at 30yr amortization. In the owner finance, deals I've done, the owner became very friendly and flexible when I offered 20 - 25% down.
1. You could you borrow the 20% down from another source then pay them back plus some interest in four years from the equity and a piece of the monthly cashflow.
2. Ask the owner to carry the downpayment for four years during which time you give him $500 of the cashflow for four years or until you can refi out.
3. Work your but off until you can get the $46k and come back ready to wheel and deal. You may be able to negotiate the price down some more when the seller sees your serious business.
BTW: I'm assuming it's a nice deal in a good area. I'd like to know more about this property and it's location because these are knee-jerk reactions.
- 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesI’ve read the entire thread. My experience lines up with SOME of the responses, not very much with others. So here is MY personal experience.
Quote from @Aidan Birmingham:
Any ideas on how to make this seller finance deal work?
Duplex in West Allis, WI
(2) 3 bed/1 bath, 1750sqft
Current Rent: $925/m each (market rent about $1100/m)
Taxes: $3900/year
Sale price seller wants: $230,000
Seller mentioned wanting a 4.5% interest rate. He also is open to interest only for first 3 years.
All the numbers I ran do not seem to allow me to cash flow much with that sale price and interest rate when factoring in insurance($150/m), garbage ($150), prop mgmt(8%), capx (5%), vacancy (5%)
When looking for low interest, low price, and low down payment, you are looking for a needle in the haystack. They exist, but it’s so rare that it’s ALMOST impossible to find. Most owner financing situations occur either because the property does not qualify for third party financing and cash buyers are limited, and or the seller wants to receive a sales price above what he could receive in a conventional sale, or wants to sell faster than a sale financed by outside financing would take.
I have extensive experience on BOTH sides of seller financed transactions. And I found that on either side the transactions take place at or above market price. Where I had used seller financing to my advantage on the purchase is when interest rates were double digits years ago. I would buy properties with 25% down and seller financing at or a little above market price - with 0 % interest paid out over 8-10 years. When a seller is focused on only price, you can pay him above market if you offer a significant discount on the interest rate, and over a long term.
You get the LOWEST price when you can close quick and pay all cash with no contingencies for financing. However, this doesn’t often equate to the highest RETURN ON INVESTMENT, as leverage and appreciation actually play a larger role than purchase price does - over the longer term. The conclusion is this - IF you can afford to carry a property that currently does not cash flow positive, and if that property appreciates at least at the general rate of price increases for real estate, and you hold the property long term, you will be very satisfied with the results. Rents tend to go up, the loan amount paid out stays constant while the amount of interest paid declines, and expenses go up less than rent. - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesNot totally true. I find there are a number of stacks of needles out there of sellers that need to do seller financing because they are getting ready to retire and didn't figure on Capital gains taxes, sales taxes, etc...and, low returns on the "paper" investments they intended to take their profits from REI sales and invest in.
Quote from @Don Konipol:
I’ve read the entire thread. My experience lines up with SOME of the responses, not very much with others. So here is MY personal experience.Quote from @Aidan Birmingham:
Any ideas on how to make this seller finance deal work?
Duplex in West Allis, WI
(2) 3 bed/1 bath, 1750sqft
Current Rent: $925/m each (market rent about $1100/m)
Taxes: $3900/year
Sale price seller wants: $230,000
Seller mentioned wanting a 4.5% interest rate. He also is open to interest only for first 3 years.
All the numbers I ran do not seem to allow me to cash flow much with that sale price and interest rate when factoring in insurance($150/m), garbage ($150), prop mgmt(8%), capx (5%), vacancy (5%)
When looking for low interest, low price, and low down payment, you are looking for a needle in the haystack. They exist, but it’s so rare that it’s ALMOST impossible to find. Most owner financing situations occur either because the property does not qualify for third party financing and cash buyers are limited, and or the seller wants to receive a sales price above what he could receive in a conventional sale, or wants to sell faster than a sale financed by outside financing would take.
I have extensive experience on BOTH sides of seller financed transactions. And I found that on either side the transactions take place at or above market price. Where I had used seller financing to my advantage on the purchase is when interest rates were double digits years ago. I would buy properties with 25% down and seller financing at or a little above market price - with 0 % interest paid out over 8-10 years. When a seller is focused on only price, you can pay him above market if you offer a significant discount on the interest rate, and over a long term.
You get the LOWEST price when you can close quick and pay all cash with no contingencies for financing. However, this doesn’t often equate to the highest RETURN ON INVESTMENT, as leverage and appreciation actually play a larger role than purchase price does - over the longer term. The conclusion is this - IF you can afford to carry a property that currently does not cash flow positive, and if that property appreciates at least at the general rate of price increases for real estate, and you hold the property long term, you will be very satisfied with the results. Rents tend to go up, the loan amount paid out stays constant while the amount of interest paid declines, and expenses go up less than rent. - 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesYou’re better at finding these deals than I am! I work in the commercial space - is your experience with finding these deals in residential, commercial or both?
Quote from @Joe Villeneuve:
Not totally true. I find there are a number of stacks of needles out there of sellers that need to do seller financing because they are getting ready to retire and didn't figure on Capital gains taxes, sales taxes, etc...and, low returns on the "paper" investments they intended to take their profits from REI sales and invest in.Quote from @Don Konipol:
I’ve read the entire thread. My experience lines up with SOME of the responses, not very much with others. So here is MY personal experience.Quote from @Aidan Birmingham:
Any ideas on how to make this seller finance deal work?
Duplex in West Allis, WI
(2) 3 bed/1 bath, 1750sqft
Current Rent: $925/m each (market rent about $1100/m)
Taxes: $3900/year
Sale price seller wants: $230,000
Seller mentioned wanting a 4.5% interest rate. He also is open to interest only for first 3 years.
All the numbers I ran do not seem to allow me to cash flow much with that sale price and interest rate when factoring in insurance($150/m), garbage ($150), prop mgmt(8%), capx (5%), vacancy (5%)
When looking for low interest, low price, and low down payment, you are looking for a needle in the haystack. They exist, but it’s so rare that it’s ALMOST impossible to find. Most owner financing situations occur either because the property does not qualify for third party financing and cash buyers are limited, and or the seller wants to receive a sales price above what he could receive in a conventional sale, or wants to sell faster than a sale financed by outside financing would take.
I have extensive experience on BOTH sides of seller financed transactions. And I found that on either side the transactions take place at or above market price. Where I had used seller financing to my advantage on the purchase is when interest rates were double digits years ago. I would buy properties with 25% down and seller financing at or a little above market price - with 0 % interest paid out over 8-10 years. When a seller is focused on only price, you can pay him above market if you offer a significant discount on the interest rate, and over a long term.
You get the LOWEST price when you can close quick and pay all cash with no contingencies for financing. However, this doesn’t often equate to the highest RETURN ON INVESTMENT, as leverage and appreciation actually play a larger role than purchase price does - over the longer term. The conclusion is this - IF you can afford to carry a property that currently does not cash flow positive, and if that property appreciates at least at the general rate of price increases for real estate, and you hold the property long term, you will be very satisfied with the results. Rents tend to go up, the loan amount paid out stays constant while the amount of interest paid declines, and expenses go up less than rent. - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesBoth. Commercial is easier.
Quote from @Don Konipol:
You’re better at finding these deals than I am! I work in the commercial space - is your experience with finding these deals in residential, commercial or both?Quote from @Joe Villeneuve:
Not totally true. I find there are a number of stacks of needles out there of sellers that need to do seller financing because they are getting ready to retire and didn't figure on Capital gains taxes, sales taxes, etc...and, low returns on the "paper" investments they intended to take their profits from REI sales and invest in.Quote from @Don Konipol:
I’ve read the entire thread. My experience lines up with SOME of the responses, not very much with others. So here is MY personal experience.Quote from @Aidan Birmingham:
Any ideas on how to make this seller finance deal work?
Duplex in West Allis, WI
(2) 3 bed/1 bath, 1750sqft
Current Rent: $925/m each (market rent about $1100/m)
Taxes: $3900/year
Sale price seller wants: $230,000
Seller mentioned wanting a 4.5% interest rate. He also is open to interest only for first 3 years.
All the numbers I ran do not seem to allow me to cash flow much with that sale price and interest rate when factoring in insurance($150/m), garbage ($150), prop mgmt(8%), capx (5%), vacancy (5%)
When looking for low interest, low price, and low down payment, you are looking for a needle in the haystack. They exist, but it’s so rare that it’s ALMOST impossible to find. Most owner financing situations occur either because the property does not qualify for third party financing and cash buyers are limited, and or the seller wants to receive a sales price above what he could receive in a conventional sale, or wants to sell faster than a sale financed by outside financing would take.
I have extensive experience on BOTH sides of seller financed transactions. And I found that on either side the transactions take place at or above market price. Where I had used seller financing to my advantage on the purchase is when interest rates were double digits years ago. I would buy properties with 25% down and seller financing at or a little above market price - with 0 % interest paid out over 8-10 years. When a seller is focused on only price, you can pay him above market if you offer a significant discount on the interest rate, and over a long term.
You get the LOWEST price when you can close quick and pay all cash with no contingencies for financing. However, this doesn’t often equate to the highest RETURN ON INVESTMENT, as leverage and appreciation actually play a larger role than purchase price does - over the longer term. The conclusion is this - IF you can afford to carry a property that currently does not cash flow positive, and if that property appreciates at least at the general rate of price increases for real estate, and you hold the property long term, you will be very satisfied with the results. Rents tend to go up, the loan amount paid out stays constant while the amount of interest paid declines, and expenses go up less than rent.
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