New to seller financing and have some questions!

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New to seller financing and have some questions!

Victoria SpagnoloPro Member
Investor · NY · Member since 2024 · 23 posts · 15 votes

Hi all. I'm looking into seller financing, as I'm looking to put little to no money down, and I have a few questions as I am analyzing a deal. What kind of property is best for seller financing? Is this strategy best for investment properties with tenants already living there/properties that can be rented quickly? I'm asking because I found a property where the owner is open to seller financing but the house needs lot of work. It's in a great area so after renovations that includes value adds such as adding another bathroom, I think the ARV could be around $250-$270k. He's asking for $150k, but I think he may accept a lower offer, plus interest. This is his parents' home and he wants to sell it by owner (off market). The $150k includes an adjacent lot about the same size that the house sits on - which is another reason why I'm interested in this deal.

I'd maybe propose interest-only payments in the beginning and then a balloon payment after the renovations, when I am able to refinance or sell. I would be responsible for the monthly interest-only payments but I have a partner who is wiling to put down money for the renovations costs. All in, I am estimating that renovations would cost about $60k. My partner wants a return on the money he's lending for renovations, which we can get with either a sale or refinancing, correct

Is this something I can work out with seller financing? What interest rate is fair for something like this? How would I sell this to the owner? Obviously theres the interest and the tax incentive. Is that enough to convince someone to do seller financing?

Thank you in advance! Appreciate any and all insight on seller-financing!

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
1y

The first thing that stands out to me is that you say "This is his parents' home". If this is correct you're dealing with someone who doesn't own the property, can't deliver a verified warranty deed, and may have no authority to negotiate a deal. I say this because many children of elderly parents think that their status as heirs, or potential heirs give them standing to transact on behalf of their parents; the reality is unless specific legal actions have been previously taken, they do not. Are the parents living? If not is your contact the sole heir? Is the property in probate? If the owners are alive are they incapacititaded? Does the heir have a legally binding, court recognized power of attorney? Does the POA give them the specific right to sell this property?

So, you need to establish your contacts ability / right to sell the property before engaging in any negotiations.  

Now, on to your questions concerning seller financing.  Any answers anyone give you will be dependent on (1) seller circumstances (financial, motivational, social) (2) your financial situation, goals, abilities, and (3) current economy and local market conditions.  And the answers will still reflect the bias of the responder!

Best bet is for you to obtain good basic knowledge of the intricacies of seller financing.  Start with reading a book by Wendy Patton.  Here’s one caveat on your particular deal though- seller financing at 90% coupled with 100% financing for repairs and upgrades leaves a 99.9% chance that the resultant cash flow will be negative.  Home prices (in general) are about 25 - 40% “out of balance” with rents.  So, unless the investor either works a deal with 0 % interest, or someone acquires a property TRULY 30% below market, or limits leverage to 60%, they will have to deal with a negative cash flow rental monthly. 

Private Mortgage Financing Partners, LLC
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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    1y

    The first thing that stands out to me is that you say "This is his parents' home". If this is correct you're dealing with someone who doesn't own the property, can't deliver a verified warranty deed, and may have no authority to negotiate a deal. I say this because many children of elderly parents think that their status as heirs, or potential heirs give them standing to transact on behalf of their parents; the reality is unless specific legal actions have been previously taken, they do not. Are the parents living? If not is your contact the sole heir? Is the property in probate? If the owners are alive are they incapacititaded? Does the heir have a legally binding, court recognized power of attorney? Does the POA give them the specific right to sell this property?

    So, you need to establish your contacts ability / right to sell the property before engaging in any negotiations.  

    Now, on to your questions concerning seller financing.  Any answers anyone give you will be dependent on (1) seller circumstances (financial, motivational, social) (2) your financial situation, goals, abilities, and (3) current economy and local market conditions.  And the answers will still reflect the bias of the responder!

    Best bet is for you to obtain good basic knowledge of the intricacies of seller financing.  Start with reading a book by Wendy Patton.  Here’s one caveat on your particular deal though- seller financing at 90% coupled with 100% financing for repairs and upgrades leaves a 99.9% chance that the resultant cash flow will be negative.  Home prices (in general) are about 25 - 40% “out of balance” with rents.  So, unless the investor either works a deal with 0 % interest, or someone acquires a property TRULY 30% below market, or limits leverage to 60%, they will have to deal with a negative cash flow rental monthly. 

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    2Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    1y
    Quote from @Victoria Spagnolo:

    Hi all. I'm looking into seller financing, as I'm looking to put little to no money down, and I have a few questions as I am analyzing a deal. What kind of property is best for seller financing? Is this strategy best for investment properties with tenants already living there/properties that can be rented quickly? I'm asking because I found a property where the owner is open to seller financing but the house needs lot of work. It's in a great area so after renovations that includes value adds such as adding another bathroom, I think the ARV could be around $250-$270k. He's asking for $150k, but I think he may accept a lower offer, plus interest. This is his parents' home and he wants to sell it by owner (off market). The $150k includes an adjacent lot about the same size that the house sits on - which is another reason why I'm interested in this deal.

    I'd maybe propose interest-only payments in the beginning and then a balloon payment after the renovations, when I am able to refinance or sell. I would be responsible for the monthly interest-only payments but I have a partner who is wiling to put down money for the renovations costs. All in, I am estimating that renovations would cost about $60k. My partner wants a return on the money he's lending for renovations, which we can get with either a sale or refinancing, correct

    Is this something I can work out with seller financing? What interest rate is fair for something like this? How would I sell this to the owner? Obviously theres the interest and the tax incentive. Is that enough to convince someone to do seller financing?

    Thank you in advance! Appreciate any and all insight on seller-financing!



    Since you know the person you are speaking to is not the owner, before spending time negotiating, you need some evidence that they have the power of attorney to sell the home on behalf of their parents.  Without it, you are wasting your time.

    The kind of property that is best for seller financing is one where the seller has little or no debt on the property. They are more open to negotiating when there's little to no mortgage to pay off.  Find out his mortgage balance.

    How to sell it to the owner? It's easier to sell it to the owner if you provide him with multiple options to sell it to you, but you have to be able to actually execute on each option. Example:  You could provide the seller with a cash offer & another option including seller financing where the owner will net more than your cash offer. 

    Fair Interest rates?  This is a hard one to answer as everyone's motivation is different.  I would focus on how much more the seller will make from seller financing than the actual interest rate.  Example- If the seller wants $150K but you can still make your investment objectives, if you offer $155K then back your way into an offer that totals $155K total, with a major portion of it being financed by the seller.


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  • Doug P.
    Investor · Kitchener-Waterloo, Ontario · Member since 2008 · 1k+ posts · 1k+ votes
    1y

    @Victoria Spagnolo I only do seller financing and I take a very simple approach. I ask questions:

    1. Mr. Seller how much do you need to get for the house?
    2. Mr. Seller how much do you need per month?

    This eliminates the unmotivated. Unmotivated sellers say things like: "I want 25% down and 10% interest with a 1 year balloon."

    If instead he says something like: "I need $150k and I'll take it in $500/month payments." Then I'll meet with him.

    If (and only if) he gives you numbers that look good do you set up an appointment to view the house and sign the contract. Ask if it's possible for everyone on the deed to be present at that appointment. If his parents are still alive they need to both be there unless he has a valid POA to sign on their behalf.

    After signing a purchase contract you run a title search to verify.

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