Looking for creative ideas on financing/ deal structure for my dad's FSBO neighbor
New to Real Estate · Member since 2019 · 38 posts · 11 votes
Looking for creative ideas on financing/ deal structure for my dad's FSBO neighbor
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Kerry BairdPro Member
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes@KC Pake made an excellent set of options. Nicely done.
I have found tired landlords who have paid off their properties; I found them by riding my bike in my neighborhood and striking up a conversation. They want a lump sum for a part of their equity, and also to get monthly payments. I pay 6% interest only on my mortgages to them, for a 5 year period of time.
The other side of this is what THEY want and get. They don't pay taxes on the part of the sale they don't receive. They get their money over time and therefore pay taxes on the gain over time.
17 Replies
- Investor · Orange Park, FL · Member since 2019 · 173 posts · 108 votes2yHello Gabe,
Quote from @Gabriel Jordan:
Hi,
As mentioned above, my dad's neighbor bought a place downtown and is looking to offload the property. I naturally raised my hand as interested but don't have the cash to buy it outright (this would be my first rental). Anyone have any recommendations on creative ways to solve this that they have done in the past? I have heard some people talk about assuming their loan but no idea how that works exactly.
Thanks in advance!
Gabe
Exploring creative financing options for real estate can be exciting, especially for your first rental property. Here are a few strategies you might consider:
Loan Assumption: Assuming the seller's mortgage means taking over their existing mortgage payments. This can be a viable option if the mortgage terms are favorable and the lender allows it. You'll typically need to qualify for the loan and may need to pay a down payment or assumption fee.
Seller Financing: The seller acts as the lender. You make payments directly to them under agreed terms. This can be flexible but requires the seller to be financially secure enough to not need the full sale price upfront.
Lease Option: You lease the property with an option to buy it later. This can give you time to build up a down payment and creditworthiness.
Partnership: Partnering with someone who has the financial resources but not the time or interest to manage a property can be beneficial. You could manage the property while they provide the capital.
Home Equity Line of Credit (HELOC): If you own another property, you might be able to get a HELOC to finance the purchase.
Crowdfunding or Private Money Lenders: These sources can offer more flexible terms than traditional banks.
Remember, each method has its pros and cons and it's important to understand the risks involved.
Best of luck with your real estate endeavor!
KC - 2yKerry BairdPro MemberRental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
@KC Pake made an excellent set of options. Nicely done.
I have found tired landlords who have paid off their properties; I found them by riding my bike in my neighborhood and striking up a conversation. They want a lump sum for a part of their equity, and also to get monthly payments. I pay 6% interest only on my mortgages to them, for a 5 year period of time.
The other side of this is what THEY want and get. They don't pay taxes on the part of the sale they don't receive. They get their money over time and therefore pay taxes on the gain over time.
- 2yKerry BairdPro MemberRental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
.
- Lender · Chicago · Member since 2023 · 176 posts · 70 votes2y
The easiest way would be if you have 25% to put down and do a regular Fannie/Freddie loan.
- 2yKerry BairdPro MemberRental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votesThat is not easy, comparatively. Need the down payment, need income source, need qualifying FICO, need tax returns. You ostensibly can buy with seller financing and have *none* of that needed for owner financing.
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Kerry Baird:
That is not easy, comparatively. Need the down payment, need income source, need qualifying FICO, need tax returns. You ostensibly can buy with seller financing and have *none* of that needed for owner financing.You also need to convince an owner to pretty much underwrite you. Getting seller finance is incredibly hard, but a viable option. As someone who gets offered seller finance for the houses I buy and someone wants me to re-sell it, I just laugh. Not a chance in hell.
- Flipper/Rehabber · Houston, TX · Member since 2012 · 176 posts · 75 votes2y
Is the property Free and Clear or it has an existing loan?
- New to Real Estate · Member since 2019 · 38 posts · 11 votes2y
Quote from @KC Pake:
Hello Gabe,Quote from @Gabriel Jordan:
Hi,
As mentioned above, my dad's neighbor bought a place downtown and is looking to offload the property. I naturally raised my hand as interested but don't have the cash to buy it outright (this would be my first rental). Anyone have any recommendations on creative ways to solve this that they have done in the past? I have heard some people talk about assuming their loan but no idea how that works exactly.
Thanks in advance!
Gabe
Exploring creative financing options for real estate can be exciting, especially for your first rental property. Here are a few strategies you might consider:
Loan Assumption: Assuming the seller's mortgage means taking over their existing mortgage payments. This can be a viable option if the mortgage terms are favorable and the lender allows it. You'll typically need to qualify for the loan and may need to pay a down payment or assumption fee.
Seller Financing: The seller acts as the lender. You make payments directly to them under agreed terms. This can be flexible but requires the seller to be financially secure enough to not need the full sale price upfront.
Lease Option: You lease the property with an option to buy it later. This can give you time to build up a down payment and creditworthiness.
Partnership: Partnering with someone who has the financial resources but not the time or interest to manage a property can be beneficial. You could manage the property while they provide the capital.
Home Equity Line of Credit (HELOC): If you own another property, you might be able to get a HELOC to finance the purchase.
Crowdfunding or Private Money Lenders: These sources can offer more flexible terms than traditional banks.
Remember, each method has its pros and cons and it's important to understand the risks involved.
Best of luck with your real estate endeavor!
KCKC,
Thank you very much for the reply. This helps immensely in terms of 'tools in the toolbox'. Question:
If doing loan assumption; how does that work? Lets say they are 50k in to a 200k loan. If I were to take over at the 50k mark does that mean I need to pay them the 50k as a 'down payment' and then just pay the bank? Does the title get signed over at the time of assumption? that seems like a big liability otherwise. In the case of the 50k being paid off by them already, would another option be I pay the bank and then pay an extra X payment to them per month to recoup that? or is it all done through a different means?
- Member since 2023 · 11 posts · 1 vote2y
Quote from @KC Pake:
Hello Gabe,Quote from @Gabriel Jordan:
Hi,
As mentioned above, my dad's neighbor bought a place downtown and is looking to offload the property. I naturally raised my hand as interested but don't have the cash to buy it outright (this would be my first rental). Anyone have any recommendations on creative ways to solve this that they have done in the past? I have heard some people talk about assuming their loan but no idea how that works exactly.
Thanks in advance!
Gabe
Exploring creative financing options for real estate can be exciting, especially for your first rental property. Here are a few strategies you might consider:
Loan Assumption: Assuming the seller's mortgage means taking over their existing mortgage payments. This can be a viable option if the mortgage terms are favorable and the lender allows it. You'll typically need to qualify for the loan and may need to pay a down payment or assumption fee.
Seller Financing: The seller acts as the lender. You make payments directly to them under agreed terms. This can be flexible but requires the seller to be financially secure enough to not need the full sale price upfront.
Lease Option: You lease the property with an option to buy it later. This can give you time to build up a down payment and creditworthiness.
Partnership: Partnering with someone who has the financial resources but not the time or interest to manage a property can be beneficial. You could manage the property while they provide the capital.
Home Equity Line of Credit (HELOC): If you own another property, you might be able to get a HELOC to finance the purchase.
Crowdfunding or Private Money Lenders: These sources can offer more flexible terms than traditional banks.
Remember, each method has its pros and cons and it's important to understand the risks involved.
Best of luck with your real estate endeavor!
KCHi KC,
Great feedback! I was curious as to the Property Management option. Can you talk a bit more about this? For instance, I'm under the impression that the key areas of management for the rental property should be at least an ability to provide ongoing maintenance and cleaning. Not to mention landscaping, pest control and other standard monthly expenses tenants have.
How would you recommend someone just getting started getting involved in property management, even if the partner has the financial resources/capital. For instance, I believe property management companies generally charge a fee, although this can vary, of a percentage of the monthly rents from the property. i.e. 1-3% of the rent.
If you're getting started, how would you cover the standard fees that it generally takes to manage the property (i.e. maintenance, landscaping, showings) without a staff. Is this something the partner/investor could cover?
- 2yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesHere are some simple criteria ro look at
Quote from @Gabriel Jordan:
Hi,
As mentioned above, my dad's neighbor bought a place downtown and is looking to offload the property. I naturally raised my hand as interested but don't have the cash to buy it outright (this would be my first rental). Anyone have any recommendations on creative ways to solve this that they have done in the past? I have heard some people talk about assuming their loan but no idea how that works exactly.
Thanks in advance!
Gabe
1. If you are obtaining new financing make sure you are paying no more than 10% BELOW market value - with deductions on top of that for needed repairs AND taking in account age and condition of the property.
2. If getting owner carryback financing you can probably pay full market value - IF the owner financed loan is long term and a below market interest rate.
3. A creative way to purchase with little or no cash investment is to borrow 75% and have the seller carryback a second position loan for the balance. 40 years ago we did these every day, now it’s very difficult to pull off without committing mortgage fraud, but can be done.
4. In all cases make sure the property cash flows after ALL EXPENSES - mortgage, taxes, insurance, leasing, management, repairs, maintenance, depreciation reserve, etc. Most SFR won’t - if you buy a negative cash flow property because of anticipated rent increases and or appreciation make sure you have sufficient reserves to “carry” the property for a significant length of time.
5. Professional inspection is mandatory.
6. Professional appraisal is highly recommended. BPO can be fairly accurate - or near worthless.
7. Your dad may NOT enjoy having your tenant living next door depending on the kind of person the tenant is.
Good luck! - 2yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Gabriel Jordan:
Quote from @KC Pake:
Hello Gabe,Quote from @Gabriel Jordan:
Hi,
As mentioned above, my dad's neighbor bought a place downtown and is looking to offload the property. I naturally raised my hand as interested but don't have the cash to buy it outright (this would be my first rental). Anyone have any recommendations on creative ways to solve this that they have done in the past? I have heard some people talk about assuming their loan but no idea how that works exactly.
Thanks in advance!
Gabe
Exploring creative financing options for real estate can be exciting, especially for your first rental property. Here are a few strategies you might consider:
Loan Assumption: Assuming the seller's mortgage means taking over their existing mortgage payments. This can be a viable option if the mortgage terms are favorable and the lender allows it. You'll typically need to qualify for the loan and may need to pay a down payment or assumption fee.
Seller Financing: The seller acts as the lender. You make payments directly to them under agreed terms. This can be flexible but requires the seller to be financially secure enough to not need the full sale price upfront.
Lease Option: You lease the property with an option to buy it later. This can give you time to build up a down payment and creditworthiness.
Partnership: Partnering with someone who has the financial resources but not the time or interest to manage a property can be beneficial. You could manage the property while they provide the capital.
Home Equity Line of Credit (HELOC): If you own another property, you might be able to get a HELOC to finance the purchase.
Crowdfunding or Private Money Lenders: These sources can offer more flexible terms than traditional banks.
Remember, each method has its pros and cons and it's important to understand the risks involved.
Best of luck with your real estate endeavor!
KCKC,
Thank you very much for the reply. This helps immensely in terms of 'tools in the toolbox'. Question:
If doing loan assumption; how does that work? Lets say they are 50k in to a 200k loan. If I were to take over at the 50k mark does that mean I need to pay them the 50k as a 'down payment' and then just pay the bank? Does the title get signed over at the time of assumption? that seems like a big liability otherwise. In the case of the 50k being paid off by them already, would another option be I pay the bank and then pay an extra X payment to them per month to recoup that? or is it all done through a different means?
Assuming the loan is not a FHA, VA or USDA it will not likely be assumable.
Hurst Real Estate, INC4.991 Reviews - New to Real Estate · Member since 2019 · 38 posts · 11 votes2y
Quote from @Hector Perez:
Is the property Free and Clear or it has an existing loan?
I am unsure - May be free and clear as they received it as an inheritance
- New to Real Estate · Member since 2019 · 38 posts · 11 votes2y
@Don Konipol Thank you. That is extremely helpful
- 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votes
Quote from @Gabriel Jordan:
Quote from @KC Pake:
Hello Gabe,Quote from @Gabriel Jordan:
Hi,
As mentioned above, my dad's neighbor bought a place downtown and is looking to offload the property. I naturally raised my hand as interested but don't have the cash to buy it outright (this would be my first rental). Anyone have any recommendations on creative ways to solve this that they have done in the past? I have heard some people talk about assuming their loan but no idea how that works exactly.
Thanks in advance!
Gabe
Exploring creative financing options for real estate can be exciting, especially for your first rental property. Here are a few strategies you might consider:
Loan Assumption: Assuming the seller's mortgage means taking over their existing mortgage payments. This can be a viable option if the mortgage terms are favorable and the lender allows it. You'll typically need to qualify for the loan and may need to pay a down payment or assumption fee.
Seller Financing: The seller acts as the lender. You make payments directly to them under agreed terms. This can be flexible but requires the seller to be financially secure enough to not need the full sale price upfront.
Lease Option: You lease the property with an option to buy it later. This can give you time to build up a down payment and creditworthiness.
Partnership: Partnering with someone who has the financial resources but not the time or interest to manage a property can be beneficial. You could manage the property while they provide the capital.
Home Equity Line of Credit (HELOC): If you own another property, you might be able to get a HELOC to finance the purchase.
Crowdfunding or Private Money Lenders: These sources can offer more flexible terms than traditional banks.
Remember, each method has its pros and cons and it's important to understand the risks involved.
Best of luck with your real estate endeavor!
KCKC,
Thank you very much for the reply. This helps immensely in terms of 'tools in the toolbox'. Question:
If doing loan assumption; how does that work? Lets say they are 50k in to a 200k loan. If I were to take over at the 50k mark does that mean I need to pay them the 50k as a 'down payment' and then just pay the bank? Does the title get signed over at the time of assumption? that seems like a big liability otherwise. In the case of the 50k being paid off by them already, would another option be I pay the bank and then pay an extra X payment to them per month to recoup that? or is it all done through a different means?
The seller is going to want to get the majority of their equity out of the project at sale. The Deed will record to you at sale, subject still to the existing Deed of Trust for their existing finances. To come up with the money due at sale you might have to combine resources with others or take on a purely financial partner. You'll have to carefully examine all of the numbers to see if putting a deal together is a profitable endeavor.
- New to Real Estate · Member since 2019 · 38 posts · 11 votes2y
That Quote from @Melanie P.:
Quote from @Gabriel Jordan:
Quote from @KC Pake:
Hello Gabe,Quote from @Gabriel Jordan:
Hi,
As mentioned above, my dad's neighbor bought a place downtown and is looking to offload the property. I naturally raised my hand as interested but don't have the cash to buy it outright (this would be my first rental). Anyone have any recommendations on creative ways to solve this that they have done in the past? I have heard some people talk about assuming their loan but no idea how that works exactly.
Thanks in advance!
Gabe
Exploring creative financing options for real estate can be exciting, especially for your first rental property. Here are a few strategies you might consider:
Loan Assumption: Assuming the seller's mortgage means taking over their existing mortgage payments. This can be a viable option if the mortgage terms are favorable and the lender allows it. You'll typically need to qualify for the loan and may need to pay a down payment or assumption fee.
Seller Financing: The seller acts as the lender. You make payments directly to them under agreed terms. This can be flexible but requires the seller to be financially secure enough to not need the full sale price upfront.
Lease Option: You lease the property with an option to buy it later. This can give you time to build up a down payment and creditworthiness.
Partnership: Partnering with someone who has the financial resources but not the time or interest to manage a property can be beneficial. You could manage the property while they provide the capital.
Home Equity Line of Credit (HELOC): If you own another property, you might be able to get a HELOC to finance the purchase.
Crowdfunding or Private Money Lenders: These sources can offer more flexible terms than traditional banks.
Remember, each method has its pros and cons and it's important to understand the risks involved.
Best of luck with your real estate endeavor!
KCKC,
Thank you very much for the reply. This helps immensely in terms of 'tools in the toolbox'. Question:
If doing loan assumption; how does that work? Lets say they are 50k in to a 200k loan. If I were to take over at the 50k mark does that mean I need to pay them the 50k as a 'down payment' and then just pay the bank? Does the title get signed over at the time of assumption? that seems like a big liability otherwise. In the case of the 50k being paid off by them already, would another option be I pay the bank and then pay an extra X payment to them per month to recoup that? or is it all done through a different means?
The seller is going to want to get the majority of their equity out of the project at sale. The Deed will record to you at sale, subject still to the existing Deed of Trust for their existing finances. To come up with the money due at sale you might have to combine resources with others or take on a purely financial partner. You'll have to carefully examine all of the numbers to see if putting a deal together is a profitable endeavor.
That helps clarify, thank you
- Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes2y
@Gabriel Jordan - does the property need any rehab? Would rehabbing add to the value? If the seller owns it free and clear you can propose to partner on the deal. They hold financing on the property. You pay them a set amount per month for a designated time period (say 12 months). You pay for the rehab and then when it's done, you either flip it or keep it as a rental and pay them off plus a percentage of the profit. You can get into a property on the cheap and they can make a higher profit in the end. You can also have the monthly payments deferred to the end. Lots of ways to make it happen if they are open to the idea.
- New to Real Estate · Member since 2019 · 38 posts · 11 votes2y
@Salvatore Lentini They do not own it free and clear. They got it from an inheritance a few years ago. I like where your head is at though. I am going to go see it as it has been a few years. I want to say overall its in good condition but would likely take 3-5k to get spruced up.
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