Buy and Hold (Seller Finance)

[Josh Young]

Investment Info:

Single-family residence buy & hold investment in Mesa.

Purchase price: $410,000
Cash invested: $39,000

Purchased using seller financing with a $38k down payment so the seller could pay off their mortgage and cover their closing costs. The seller wanted a payment over $2k per month and a 36 month balloon, so we did 2% interest on an 18 year amortization schedule with a 36 month balloon payment. This property didn’t need any renovations and the seller let me advertise it for rent before we closed, so I got it leased out with a lease starting 3 days after I purchased it.

What made you interested in investing in this type of deal?

I own several properties in the area and it fit my buy box perfectly. No HOA, no pool, no solar, 10% down payment, and break even cash flow.

How did you find this deal and how did you negotiate it?

I found the deal on the MLS and negotiated directly with the seller. I found out what she wanted and I worked the numbers to make it work for both of us. At first I offered her $370k with 5% interest, but she wanted $410k, so I lowered the interest rate to 2% and shortened the amortization schedule to keep the payment roughly the same, it did increase the balloon payment a little bit, but I think I can still be at 75% LTV when I refinance.

How did you finance this deal?

Seller Financing. My cash flow is break even, but my principal pay down on the loan is significant at about $17k per year. I should be able to do a rate and term refinance at the 36 month balloon payment and be cash flow positive with an LTV under 75% and over $100k in equity.

How did you add value to the deal?

I really didn't do any rehab other than adding pulls to the kitchen cabinets and re-caulking the tub and shower.

What was the outcome?

I added another great asset to my portfolio and now I'm on the hunt for my next deal.

Lessons learned? Challenges?

The seller let me know that she had a lot of other investors try to buy this house from her and she said they all sounded like they were reading from a script or trying to low ball her. She said she went with me because of my collaboration where all parties felt mutual respect. I tried to figure out a way where I could pay her as much as possible and still have it work for me, so it could work for everyone.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I am an agent, so I found the deal myself on the MLS.