How could a seller finance deal work in a new investors favor ?

31 Replies

Hello bigger pocket friends I'm curious on some things that could benefit a new investor from working a seller finance deal, what are some perks and things to look for when trying to make a seller finance deal work from a investors point of view any feedback helpful

The main benefit is you don't have to deal with bank underwriting/approval and typically need less than 20% down.

@Robb Krautbauer Well in a few of the bigger pockets podcast episodes some of the guest, when getting started in real estate investing they refer to them using seller finance as one of there strategies to get started. My question is how would this help you get into investing as a first deal is there benefit at all what would the numbers have to look like, I'm looking to use the BRRR Strategy
@Abel Lopez it all depends on the sellers terms. Usually you can get in with less money down, but you'll likely have a shorter term before you'd need an exit strategy. So plan ahead but it can be a good way to get into a deal
@Abel Lopez also consider that, when you'll need to exit and pay the balloon payment to the seller, that bank interest rates will likely be higher than the are now, so be conservative in you future projections.
@Jason D. $85,000 with 10% down -8,500 $76,500 financed at 7% for 20y Tax and insurance = $400 a month $593.10 or 993.10 ish I want a 5 yr ballon loan where you would go to a bank to get a regular loan in 5 years. These are some some of the details. Some of the comps in the area are around $100,000 this property is move in ready clean and ready to rent, previous rent was $900 and as high as $1,100
@Abel Lopez am I reading this to say your payment would be $993 and it rents from $900-$1100? If that's the case, there's nothing there for you. Not much equity to start and no cashflow. You'd have to negotiate better terms to make it a deal.
@Jason D. Yes thanks for response that was what I was trying to figure out what should I negotiate lower over all price and if so how much? Also the balloon loan and interest rate at 7% is this to high. What points could I hit to make this deal work for me that's Basically what I'm trying to determine
@Abel Lopez You can get a conventional loan for less then 6 percent and 30 year amortization. So these terms are great. You’d need a lower interest rate and longer amortization

@Abel Lopez  yes it would.  Likely you’ll have a balloon payment at 5 or 10 years and you’d have to refinance.  

May be best just to get a bank loan

To build on what @Caleb Heimsoth said. There are 15% loan products out there for investment properties. If you could invest a little more cash, that would be the ideal way to go, on this specific deal, in my opinion.

can confirm what @Jason D. just said.  I’m using one of those right now.  Typically this is only for single family.  My interest rate is 5.625 percent.  Could be a bit lower or higher then that now as I locked a couple months ago

Originally posted by @Abel Lopez :
@Dennis M. Haha yes that's exactly why I was asking would it be worth re negotiating the deal to better terms if so what would you ask for in this type of deal

Doesn’t hurt to ask .. if you could get in at the right terms you could have a decent little arrangement. Why a balloon ? I’d try to get the guy to carry it till it’s paid even if it meant a slightly higher payment . Why does it have to be 7% interest I’d ask for 4% or 5% . Why do you have to pay closing costs ? My point is you can be creative on deals to your advantage and hash out better terms skewed in your favor if he will go for it  and wants to sell bad enough . 

A lot of rentals (dare I say most?) on the market are other people’s mistakes.  Don’t buy a rental just to check the box and say you did.  If you want to lose money every month donate to charity.  You’ll save yourself a lot of headache.

I’ve read the books, I’ve heard the promises, I’ve sifted through the bragging of the infinite returns that can be made with no money down.  They do exist. But are they sustainable?  Most often probably not.  

Save money for a down payment and find a solid cash flowing property that will cover expenses in lean times and pad your wallet in good times.  It’s not sexy, but it’s sustainable (and profitable...).

@Abel Lopez Depends on the terms but for a Canadian like myself it avoids a lot obstacles we face from US lenders.. especially as a beginner we would be considered medium to high risk and nailed with lower LTV and higher interest rate.. On a side note I seen an agent list a few large multi family and a few bulk duplex deals that are all seller financing in Chattanooga. All the financial doc's were provided and the numbers simply did not work.. The debt service just eats the deal alive..
@Abel Lopez this is a bad deal. You dont have enough cashflow between payment and rent. This is charity work. Go on youtube and learn about creative financing techniques so you can understand what "tool" to use and how to apply it. Now, you could make some change here if you can wholesale this as a lease - option . No need to stay in the middle of this deal. Happy investing