Owner Financed Apartment Quesions (88 units)

7 Replies

48 Units

44 - 2/1

4 - 1/1

ASKING: $2.7M

Gross: $365,000

Net (depreciation added back) $234,000

New shingles, new rain gutters, great location next to park, not far from down town, preferable area of town. No current vacancy. Was managed by company, now owner managed until sale(company was increasing rates for the year). Owner is liquidating several buildings in the state and cashing out in retirement. Has owned units for approximately 20 years.

40 Units

38 - 1/1 - $490/mo (utilities included)

1 - 2/1 $650/mo (utilities included)

1 Studio

ASKING: $1.3M

Gross: (need to get gross numbers)

Net(depreciation added back in): $130,000

No current vacancy. Includes shop and storage sheds. Good side of town. Is not apartment building, but 10 4 plexes. Was managed by company, now owner managed until sale(company was increasing rates for the year). Owner is liquidating several buildings in the state and cashing out in retirement. Has owned units for approximately 20 years.

Owner will finance one or both.

Financing terms:

20% down

5% interest for first 2 years.

increase rate .5% each year after until 10 year balloon.

I’m interested in getting into this light and attempting to negotiate a way into a no down or extremely low down deal. I can come up with some cash, (20-30k) but would rather not.

Basically, my questions:

What might I be missing?It seems to me that the financing terms are less than favorable unless he is willing to take less down or negotiate somehow.

I am looking for a way to structure a deal that is no or low down, how might you do that?

My thoughts:

  1. Seek bank financing with owner carrying 20-30% down payment with prefviously mentioned terms.
  2. Seek cash investor to cover 20% down payment (numbers don’t seem to be attractive enough for a cash investor to bring in that kind of cash, but I may be wrong)
  3. Flat out tell the seller I’m looking to get in lighter than 20% and see how much he would.
  4. If i’m off my rocker, I would love to hear that too. Just trying to make the deal work with little to no down.
    1. based on a quick look at cashflow v. debt service, it looks like (based on the numbers given) this could be a tight deal at 100%. I’m aware of that. What I’m wondering is, how can I make this deal look good and structure it so I am out of pocket up front at a low cost?
  5.        It looks like I might need to get more info to really get a good analysis, but this is my first time looking into an apartment unit. 


Thanks in advance for anybody with knowledge and a voice taking a few minutes to give some advice on this deal and what you would do to try to make it work. 

Fist off the lender will not finance 100% they want you to have skin in the deal and now do you have reserves in case something goes wrong and do you have closing cost, insurance money.


Joe Gore

If the guy is retiring and giving up cash flow he wants 20% down. He might have a tax event with regular sale which is why he is offering the finance as the way to go.

There are people with cash down who cannot qualify the conventional bank loan way and I have had investor owners tell me before that was their target buyer.

Think about this as a seller you do no money down and then the property gets run down and he has to foreclose and take it back ( fun retirement huh). Then he has to spend years trying to get the property performing again where he last left it. I hear these stories all the time from property owners selling for a second time and say no zero down owner finance.

It sounds like you do not have a track record yet or other properties to cross collateralize for security and little cash to put down. 

Is this listed by a broker?? If so the seller will want to use your down payment to pay for their commission. So at  a minimum down you pay 6% and then closing costs on top and the seller gets nothing. At 20% down they might net 10 to 12% of that after expenses to close and payouts.

Take owner finance out of it and determine if the asking price is a great cap rate or not for the area. Sellers typically inflate the price for seller finance. Paying a little more is okay but not much.

Generally the four scenarious are:

1. All owner finance - Highest Price Paid

2. Some owner finance with bank for the rest after down payment- Next highest payment

3. Owner finance a portion and the buyer pays the rest cash. This can be more favorable because the seller does not have worry about the bank underwriting the borrower for a loan.

4. Buyers pays all cash with no owner finance. Typically best price.

The 1/2 a percent rate increase a year is awful. That is like taking a 5 pound weight and you are swimming and barely get above water for air and another weight that is heavier than before is added onto your neck until you go under.  

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@Joe Gore 

 Yes, I would have the reserves for problems and insurance, this wouldn't be a problem. 

@Joel Owens  


Thanks, that makes absolute sense on all points, and I definitely understand a seller/bank wanting to see me having skin in the deal, but that's why I'm interested in creative real estate as well. Leverage. :)

I will get more information on numbers from him and most likely seek to get bank financing perhaps with the seller carrying some (maybe I can get in for less skin then).

I agree on the 1/2% interest bump. That is painful, and would quickly kill the property at the current numbers

Thanks guys for chiming in.

I'll explore it cautiously and see what I can do to make a deal. :)

Hi Ryan,

A lot of seller financing was back when the markets were frozen 2009,2010,2011.

Today if the property is a good cap rate buyers are all over them on the commercial side. I know I represent a lot of buyers and review hundreds of properties a week.

If the seller makes money off this property it doesn't make sense for them to do zero down and get nothing except the loan payment. The only time I see that is a problem property that is not running well and usually the sellers are selling at an inflated price.

I would first see if the sellers number are accurate and it's a deal. If it's a deal you can often find partners or just assign the property and collect a fee. If the numbers are accurate you need to drill down on why the seller wants to owner finance. If it's a tax event they won't want to be paid off with your loan from a bank.  

Now there are certain small towns where if you know the seller and they are retiring they might give you a chance. If you are just a buyer to them with no other connection then chances are slim. When properties are listed the broker is a gatekeeper. The broker reviews offers coming in and qualifications of the buyer. Are they experienced, do they have high liquidity after down payment, are they overseas or out of state, local to the area, any properties they can put up as collateral, great job/business with high recurring income etc.?

If the buyer doesn't have any of those things they really aren't desirable.

Hey all,

Apparently my reply didn't post (user error).

Attached is the analysis of the property with a 2nd mortgage (private lender) at 10%.

It seems to me that at this price, with these terms, this isn't a 'hot' deal. I feel like the property is a little overpriced. 

Thanks to all who have chimed in and to any who chime in after this post.

HERE IS THE PDF OF THE ANALYSIS

Thanks again!