What does a seller finance deal look like?

7 Replies

Hello BP people!

I've searched around and found some great insight on SELLER FINANCING, but I'd like to see if I can dig a bit deeper...

My hypothetic deal: 

Seller is asking $250K for his turnkey 6plex.

Gross income is $36,600yr

I've yet to get an answer as to why the seller is open to selling, I replied to a for rent craigslist ad just asking if the owner might be open to selling the building? Owner asked what kinda numbers and terms I might have to offer..

My interest for it is I'm closing on a 4plex directly across the street thats the ugly one on the street.. numbers on this are $130k purchase $10k in repairs, gross with range from $24,000-26,400yr once vacant units are filled.

Can someone somewhat draw out how a completed seller finance deal might look with numbers on the $250K 6plex? What should my asking price be, interest rate, interested only payment, ballon payment, terms?

If you need more info please ask and I'll do my best to provide what I can.... Id like to start learning how to possibly structure these seller financing deals..

Thanks in advance

@Joshua Redmond a good ol phrase to remember is "if the seller creates price then you create the terms" all of your questions are all factors of negotiate to get best deal possible for either party. Make a decent offer and then offer again if necessary until a deals made. you don't give much info here to give proper break down but  use the tools provided on here and you will find the way i'm positive! Good luck

@darrenwashington thanks for your input here!! What info can I supply to help have an example offer given?

In my mind:

Seller wants $250k

Offer $225k

20% down

7% interest only on the remaining $180k

2yr ballon

Payment is roughly $1,080 interest
$12,960yr x 2 = 25,920 + $225,000 = $250,920

Gross rental income is $3,050

Minus my management, taxes, insurance, etc... still

Would roughly put me at $1,300-1,400 positive

Am I on the right path or where can I tweak things? No commissions being paid by seller here and we’d have to figure closing costs and all that comes with a seller financed deal.

Thanks

@Willie Cunningham if you’ve yet to listen, in the last few weeks there was a podcast that was great on the lease option topic, make sure you check it out if you haven’t. I’ve never done a lease option but I feel I understand those deals much better, even though they seem very similar.

Hopefully soon someone will chime in that can offer us some further detail, and help!

2 year balloon seems too short to me.  I'd want at least 5 years, since you'll have to find financing (or renegotiate with the seller for new terms) when the balloon comes due.

Are all of the units rented at market rate, or can you rehab units and bump up the rent?

Specify amortization time frame, so if you amortize it over a longer period of time, the payment is smaller

the last one we did (2 years ago), I think it was 20% down, 4% interest amortized over 30 years.  We put some text in the offer about knowing the seller's kids and our intent for the property (keep existing tenants).

good luck...keep us updated!

@Joshua Redmond Last weekend a seller offered me 0% down 0% interest but only if I moved into the property myself. Naturally that didn't work for me. But it's not unusual for motivated sellers to offer zero down and 1-2% interest. In fact the only situation where I would pay more than about 3% is if they have no equity and my payment has to match theirs.