Owner agreed to seller finance..Great! Now what?

10 Replies

Direct marketing is yielding leads and I have learned to follow up with this last question when the seller doesn't want to discount. "If I agreed to buy for full price would you carry the loan"?
So the owner said yes.
I am in Stockton California and the owner has a vacant free and clear house.
I asked the owner what terms and amount she would consider. She said the term would have to be 15-20 years but not sure of the interest rate. she wants me to come up with the specifics.

My question. I know everything is negotiable but how do I find what the going rates and terms are for my area? Obviuosly I want to structure a win/win deal but I am green in the seller finance area of real estate.

Are there any investors in the Central Valley who buy Sub2 or with seller financing that could give me some suggestions?

Interest only I have paid 6-7% with 15-20% down.  Or principle and interest at 6% ammor 30 years.  

[email protected] | CA Agent # 01957844

I would base your terms on the cash on cash return and monthly cashflow.  You might have a smoking deal and would be willing to pay a +7% interest rate.  Point is the deal somewhat determines your terms.

[email protected] | CA Agent # 01957844

Hi Patrick, congrats on your find.  My question to you before thinking about the owner finance deal is what is your exit strategy with this property.  Know this first, you will be able to figure out what type of deal you can come up with.   Once you sign the contract with owner are you planning to lease option it to a tenant or rent it out?  Is this a quick flip or hold property?  Did you calculate your cash flow already to determine your exit plan.  What I would usually try to do is indicate sales amount and never say anything about interest rate unless he brings it up.  For example, Deal is at $200,000.00 followed by $555.55 X 360.  Find out how much money would he like to earn monthly and work backward from there.  If you know what he wants it can be a win win for all.

Nixon Vayupak, Group334 Inc | [email protected] | 626‑502‑6233 | http://www.group334.com

Thanks for the information! That seems like a great way to structure. So if the purchase price is $140,000.00 and she wants $700.00 per month for 20 years. She will collect $168,000.00. Who draws up the note? Do i need to hire a lawyer or could the title company handle it?

@Patrick Martinez   buy glancing at your figure it seems like that $700.00 per month for 20 years with the purchase price of $140,000.  Her interest rate is like 2%.  WOW, you got great deal there on paper.  Work with your title company to help you with your paper work and you are good to go.

Nixon Vayupak, Group334 Inc | [email protected] | 626‑502‑6233 | http://www.group334.com

Great post; I have an additional question, @Nixon Vayupak . You mention exit strategies such as quick flips & lease optioning.  How does seller financing work in those situations?  I'm only familiar w/ how it works in a buy/hold scenario.

@Vonetta Booker in regards to quick flips and lease options... I was try to determine do I really want to keep this property or not.  What is my cash flow and is it worth my time.  When getting into contract with a seller, I would try to indicate in a clause that this note can be "assumable", which allows me to have leverage to get out and sell. 

Nixon Vayupak, Group334 Inc | [email protected] | 626‑502‑6233 | http://www.group334.com

@Vonetta Booker in an owner finance deal you can do anything you can as if you bought the house from the bank, I have done a owner finance lease purchase and it worked that way

Maybe we can revive this post....  Trying to understand the mathematics of Seller Financing and how you figure what numbers work for you.  I understand it can vary and your exit strategy can sway that.  My goal is to find a property where the seller owns free and clear and buy it using owner financing and then lease option it out.

If the house is worth $100k and probably rents for $800/month, itsin livable condition, but could use some touch ups (less than $4k).  What would I want my monthly payments to the seller to be in order to cash flow?  Taking into account taxes/ins/vacany/maintenance/repairs, etc (what % is this of the monthly rental income?).  Say I want to cash flow $150/month.

I know these numbers may be small, but my goal is to understand the thought behind it and then can apply to any numbers. 

1. If I know market rents

2. Know purchase price, rehab needed, and ARV

3. Know what I want to cash flow

4. How do I estimate for the taxes/insurance/management/etc (is there a certain % of the rent used to account for these expenses?)?

5. Then I can find out how much I am able to pay seller for my debt service.

Originally posted by @Brian Alterman :

Maybe we can revive this post....  Trying to understand the mathematics of Seller Financing and how you figure what numbers work for you.  I understand it can vary and your exit strategy can sway that.  My goal is to find a property where the seller owns free and clear and buy it using owner financing and then lease option it out.

If the house is worth $100k and probably rents for $800/month, itsin livable condition, but could use some touch ups (less than $4k).  What would I want my monthly payments to the seller to be in order to cash flow?  Taking into account taxes/ins/vacany/maintenance/repairs, etc (what % is this of the monthly rental income?).  Say I want to cash flow $150/month.

I know these numbers may be small, but my goal is to understand the thought behind it and then can apply to any numbers. 

1. If I know market rents

2. Know purchase price, rehab needed, and ARV

3. Know what I want to cash flow

4. How do I estimate for the taxes/insurance/management/etc (is there a certain % of the rent used to account for these expenses?)?

5. Then I can find out how much I am able to pay seller for my debt service.

These are all really so different depending on the property and market...

1. If you don't know the market prices personally, try calling a few property managers in the area as a perspective client and just asking them. 

2. Ask the seller and have a full slew of independent inspections done. 

3. This one is reall up to you :)

4. Don't estimate - ask the seller and speak to PM/insurance agencies beforehand. Buying agent can help if you have one. 

5. Again, the only person who can say if the numbers work for you is you.