Seller Financing that Benefits Me? PG County Maryland

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Seller Financing that Benefits Me? PG County Maryland

Account Closed
Riverdale, MD · Member since 2016 · 18 posts · 12 votes

Hi everyone!

Background: I am new to REI and have been reading the seemingly endless available blog posts and forum threads here on BiggerPockets. I decided to start to look for some leads in my area in Prince George's County, Maryland. My wife and I would like to move into another home in our area using an FHA loan and rent out our current home, selling the current home in about two years or doing a cash out refinance.

Situation: There is a house in my neighborhood that has been renovated at a snail's pace for the past 12 months. I got in touch with the owner to see if they were interested in selling. The seller indicated that they recently found out about some personal health issues and were indeed interested in selling. They want to get $300k for the home (relatively appropriate for the area) and it still needs $50-75k in updates to finish it. In most ways, this house is not a deal for a flip etc. as the numbers currently stand. However, the seller offered seller financing that is clearly beneficial to me (without the stereotypical benefits of owner financing to the seller). This includes: as much as 50 year amortization if I want, a low down payment, and a low interest rate of as much as 2-4%. 

Without relying too much on speculation, with updates etc. and the development in the area, the home could likely sell between $400-475k in the next 2-3 years.

What are everyone's thoughts on this deal? Is it too complex and strange to be a first entry into REI? I have primarily been looking at multis in the area, but have come to realize that there are very few multis in this area, relative to the population size and housing market. Thanks in advance for any thoughts and for being such a great community.

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Lenzy Ruffin
Washington, DC · Member since 2015 · 139 posts · 102 votes
9y

What experience do you have in rehabbing properties? $50K-$75K is not updates, those are repairs. That is a full rehab that has to be managed as such. See J. Scott's book on flipping houses in the Bigger Pockets library. I know you're not flipping this house, but with that amount of repairs needed, it's basically a flip that you're going to move into. That amount of repairs is a big project, especially if it's your first one. How did you determine that repair estimate anyway?

Also, $300K in Riverdale is basically retail price, depending on the size of the house and where exactly in Riverdale it is. That's a high price to pay for a house that needs $50K work, minimum. And what is your basis for suggesting that the house could sell for $400K-$475K in two to three years? Do you have a data analysis to support that? Otherwise, it's just speculating/guesstimating. Even with a data analysis, you'd still be trying to forecast the market, which nobody can do. Investing based on appreciation is something they routinely caution against in the podcast. You make your money on the purchase, not on the sale. If you buy for $300K and your repair numbers are right, then you'd be investing based on appreciation because you bought too high. If you plan to live in this house for ten or fifteen years, that's something different. But if you're thinking about selling it within five years or so, you should probably take a hard look at the numbers using one of the BP calculators. 

I'm not trying to discourage you from pursuing this. I'm asking you questions that you may not know to ask so you go into this fully informed. $75K is a lot of repairs. There are so many opportunities for things to go sideways when you have to do that much work. You need to have a plan for executing that rehab before you start. Have you identified a contractor? Have you gotten a repair estimate to know exactly what needs to be done? How are you going to fund the repairs? What is your exit strategy for this house (do you plan to live in it indefinitely or flip it in the near term)? Once you figure all these things out, you'll be in a better position to evaluate this opportunity.


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  • Arthur L Dusenbury
    Investor · Schaumburg, IL · Member since 2016 · 34 posts · 14 votes
    9y

    Go for it live in it or rent it.  That is decent for a seller financing.  With interest rate like that the payments will be peanuts with out looking at rental comps I'D say you have a good deal.

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  • Joshua Eboh
    Lender · CHARLOTTE, NC · Member since 2016 · 14 posts · 3 votes
    9y

    Sounds like a fabulous deal to me. The finance terms are spectacular. If the property has comparable in the neighborhood that agree, i would move forward

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  • Lenzy Ruffin
    Washington, DC · Member since 2015 · 139 posts · 102 votes
    9y

    What experience do you have in rehabbing properties? $50K-$75K is not updates, those are repairs. That is a full rehab that has to be managed as such. See J. Scott's book on flipping houses in the Bigger Pockets library. I know you're not flipping this house, but with that amount of repairs needed, it's basically a flip that you're going to move into. That amount of repairs is a big project, especially if it's your first one. How did you determine that repair estimate anyway?

    Also, $300K in Riverdale is basically retail price, depending on the size of the house and where exactly in Riverdale it is. That's a high price to pay for a house that needs $50K work, minimum. And what is your basis for suggesting that the house could sell for $400K-$475K in two to three years? Do you have a data analysis to support that? Otherwise, it's just speculating/guesstimating. Even with a data analysis, you'd still be trying to forecast the market, which nobody can do. Investing based on appreciation is something they routinely caution against in the podcast. You make your money on the purchase, not on the sale. If you buy for $300K and your repair numbers are right, then you'd be investing based on appreciation because you bought too high. If you plan to live in this house for ten or fifteen years, that's something different. But if you're thinking about selling it within five years or so, you should probably take a hard look at the numbers using one of the BP calculators. 

    I'm not trying to discourage you from pursuing this. I'm asking you questions that you may not know to ask so you go into this fully informed. $75K is a lot of repairs. There are so many opportunities for things to go sideways when you have to do that much work. You need to have a plan for executing that rehab before you start. Have you identified a contractor? Have you gotten a repair estimate to know exactly what needs to be done? How are you going to fund the repairs? What is your exit strategy for this house (do you plan to live in it indefinitely or flip it in the near term)? Once you figure all these things out, you'll be in a better position to evaluate this opportunity.


    2Reply
  • Malcolm Lawson
    Annapolis, MD · Member since 2015 · 132 posts · 52 votes
    9y

    There is a saying "I'll give you your price if you give me my terms." Seller financing for 50 years at 2-4% sounds like great terms. Have you run the numbers yet? What can you rent the home for after repairs? What will your monthly holding cost be? Taxes, HOA, insurance, financing cost, property management cost, ect. If you stand to make a nice monthly profit I would say go for it.

    As for your estimate of $50-$75K in repairs, no offense but if you are new to REI than there is a good chance your estimate might be off. If that estimate came from the seller, he has an incentive to underestimate the cost of repairs. I would recommend having a licensed contractor come out and give you an accurate estimate, even if you have to pay for there time it's worth it.

    Also how confident is your ARV estimate of $400-$475? That seems like a pretty big range. Unless you are really familiar with estimating home values I would recommend asking a real estate agent what they think the ARV would be. If you message me the property address and some basic info I can pull some comps and try to give you an estimate of it's ARV. I do ARV estimates all the time.

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