HELP! At My Wits End!

19 Replies

I am attempting to workout some terms with a seller.  They want to sell, but only at the price they want. They have not been able to sell the property in years.  The problem is that the property is in too bad of condition to get the upfront, cash price that they're looking to gain.  I can understand this pain.

The property is free and clear and seems like the perfect opportunity for owner financing.  I suggest to the seller to reduce the purchase price, gain a down payment, and finance the remaining balance.  With the interest on the remaining balance, the seller actually profits way more than their initial goal price.  It's a passive, monthly cash-flow and they no longer have to worry about the property.  

The seller's fear is that a buyer will sell the property before the term is complete and simply look to payout the remaining balance before their purchase price goal is reached.

My question:  Is there something that guarantees that a buyer completes the financing full-term?  

Any advice is GREATLY appreciated.

@Colby White you could add a pre-payment penalty, but you'd have to find a real sucker to sign a 30 year pre-payment penalty.

Originally posted by @Colby White :

@Jason D. Is 10 years reasonable?

 It would be very difficult to find an end buyer to agree to it. Even 5 year is on the high end. It sounds like an unreasonable seller, and it seems you have given him some viable solutions but he just isnt interested. 

It just may not be in the cards for this one.

@Colby White   Could you adjust the pre-payment penalty depending on how long it's been held?  Ie if they pay it off in the first year its $10k, second year $8k, 3rd year $6k and so on?  That way seller can get the price they want and the buyer has flexibility to weigh out the pre-payment penalty options.

@Jason D. The price points are so low in this area and the property needs so much work that i honestly believe a buy and hold is the only way to make money

If the terms are great then no need to sell. 

If I were you I would buy it with seller financing and rent it, if you can create positive cash flow you have a long term property

@Rob Massopust even though I’m looking to wholesale the deal, this is what i proposed to the seller...they’re stuck on the upfront cash even though the can make more financing

I see the challenge is if you wholesale it and seller wants money upfront and the buyer is going to cash out the seller. But if the underlying terms are good just find a buyer that wants to buy and hold you can still put it together that way. Flippers only want to flip to make quick cash, find a buy and hold investor [look to existing landlords versus flippers].

Originally posted by @Colby White :

I am attempting to workout some terms with a seller.  They want to sell, but only at the price they want. They have not been able to sell the property in years.  The problem is that the property is in too bad of condition to get the upfront, cash price that they're looking to gain.  I can understand this pain.

The property is free and clear and seems like the perfect opportunity for owner financing.  I suggest to the seller to reduce the purchase price, gain a down payment, and finance the remaining balance.  With the interest on the remaining balance, the seller actually profits way more than their initial goal price.  It's a passive, monthly cash-flow and they no longer have to worry about the property.  

The seller's fear is that a buyer will sell the property before the term is complete and simply look to payout the remaining balance before their purchase price goal is reached.

My question:  Is there something that guarantees that a buyer completes the financing full-term?  

Any advice is GREATLY appreciated.

Colby,

Even if the buyer sells the property before the term is complete, the buyer is still obliged to pay off the seller the full asking price. For example, let's say the total sales price is $200K with $20K down, so there's a $180K balance.

If the buyer, at year 5 sells the property for $220K, he still owes $180K (assuming interest only). 

Unless you're trying to negotiate a NO money down deal, then I can understand why the seller won't agree to it.

If that's the case, the solution is this:

The buyer puts down the amount of cash needed to fix the property. Worst case scenario for the seller is he gets his property renovated.

And it's a win for the buyer too because now he has a property that is worth more so he might get financing to cash out the seller too.

Makes sense?

Originally posted by @Michael Ealy :
Originally posted by @Colby White:

I am attempting to workout some terms with a seller.  They want to sell, but only at the price they want. They have not been able to sell the property in years.  The problem is that the property is in too bad of condition to get the upfront, cash price that they're looking to gain.  I can understand this pain.

The property is free and clear and seems like the perfect opportunity for owner financing.  I suggest to the seller to reduce the purchase price, gain a down payment, and finance the remaining balance.  With the interest on the remaining balance, the seller actually profits way more than their initial goal price.  It's a passive, monthly cash-flow and they no longer have to worry about the property.  

The seller's fear is that a buyer will sell the property before the term is complete and simply look to payout the remaining balance before their purchase price goal is reached.

My question:  Is there something that guarantees that a buyer completes the financing full-term?  

Any advice is GREATLY appreciated.

Colby,

Even if the buyer sells the property before the term is complete, the buyer is still obliged to pay off the seller the full asking price. For example, let's say the total sales price is $200K with $20K down, so there's a $180K balance.

If the buyer, at year 5 sells the property for $220K, he still owes $180K (assuming interest only). 

Unless you're trying to negotiate a NO money down deal, then I can understand why the seller won't agree to it.

If that's the case, the solution is this:

The buyer puts down the amount of cash needed to fix the property. Worst case scenario for the seller is he gets his property renovated.

And it's a win for the buyer too because now he has a property that is worth more so he might get financing to cash out the seller too.

Makes sense?

 I believe the issue is IE the buyer wants $220k and no less. Colby suggests going down to $200k but financing $180k of it and with interest the seller will get $240k. The seller is afraid someone says yes, then pays it off after 1 year and the seller only makes $205k off it so they "lost" $15k after sitting on it and paying taxes for the last few years because they're short sighted 

@Michael Ealy the buyer wants cash down. They feel like they’re being too generous and giving the property away by dropping the purchase price. I’m not sure they’re realizing they’re making it up (plus some) on the back-end. Not to mention the taxes saved because the money is spread out over time

@Bryan Devitt yep, the exact scenario you described. I’m hoping that a pre-payment penalty will calm their fears. For a buyer, this is a long term buy and hold

@Colby White I've done interest only payments to a seller once when I was in this situation. This ensured he got his price and the interest was the icing on the cake. For this to work for me I had to have an equity position built in. At the time it was 20% of ARV(buy and hold property). The note was short but it was interest only. I refinanced the property in 6 months and paid seller off the balance of the note. All the best to you. Otherwise as @Jason D.   mentioned you can do a pre-pay penalty.

I have seen a declining prepayment scale on a 5 year arm. 

5% the first year dropping 1% per year.  Maybe have a extra 10,000 penalty the first year so no matter what he ends up with 220,000 if the buyer refinanced right away. 

But does these numbers work or is it one portion of the puzzle?

Type up all the scenarios you can think of and what needs to happen for him to get his 220,000.  

Heck pay him 220,000 for the property 20% down zero percent interest for 5 years with a renewal of X percent for another 5 years on the back end.  

He holds the note and he can get his magic number out of it.  You have 5 years of interest free payments to get it where you need it to be at to get number that makes you money.  

You can arrange the deal however you want . Add restrictions in the wording that allow you to pay off early make sure there are no balloons and finance it for as long as they’ll agree to . Maybe a bigger down payment will entice them maybe a slightly higher interest rate will .. you have to find that sweet spot where they’ll budge . Atleast they are open to the idea , most are not unless they are tired burnt out landlords trying to dump their portfolio. Seller financing is something the average homeowner is scared and reluctant to agree to because in life we fear what we don’t understand, get it in paper sit down with them , help them understand and build trust

@Colby White

What price points are you talking? What's spread between what seller wants and what is being offered?

Most likely seller has unrealistic expectations and it will be hard to find common ground.

@Will C. Yeah, the seller bought the property almost 20 years ago for 77K. The property is in such shape now that it doesn’t warrant that price anymore. They’re wanting 78K. Straight cash, outright, no one could purchase it, make the repairs, sell it OR rent it and make money.

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