I recently attended a local REIA meeting and they were talking about investors should try to always think outside the box. So here's my idea that I would love to hear others opinions on.

There is a tri-plex being sold in my area in great condition and I'm trying to think of ways to make both the seller and I happy. The asking price is $149,000 and the rents total $1650/month. My numbers don't come close to this working plus I only want to put $10,000 down.

So let's assume the seller is ok with owner financing. If I offer $100,000 w/ 10% down interest only for 3 years with a 7% interest rate the owner would receive $35,200 after 3 years. Then agree to a new 5 year loan at 7% ammortized at 20 years. That means after five years the seller would get $29,500 in interest and I've paid down the loan to roughly $77,000. I could then find a traditional loan or sell and the seller ends up getting the price they want. This would of course assume the seller agrees to be in a relationship for at least 8 years.

Is this deal juicy enough for a seller? Is it even legal? I also would imagine this would create less of a taxable event for the seller.

Thanks in advance for the feedback!

Is this on the market or off market? If it’s on market I’m guessing you’re going to have a hard time getting a 170k property for 100k. I would be more inclined to offer 140 or 150 and put 15k down.

I just see a lot of issues with this if it’s on the mls. If it’s not then your chances are propably much greater. However if it’s in great shape why would they sell it to you at such a huge discount AND do owner financing?

From a point of taxes would you rather make 170k and pay about 30k in taxes or make 100 and wait for another 3 years to make another 30k. Even with taxes if they sell for full list it’s a better deal

Thanks @Caleb Heimsoth for the response! It is an off market property and the asking price is $149,000. The idea is for the first 3 years the seller benefits from receiving interest only payments. After which I get the property for the price I want($100,000). I'm in it for the cash flow and want to put very little down($10,000). The second part of the deal is traditional seller financing at 7% interest for 5 years. After that I can get traditional financing or sell it for as little as $100,000 and still be happy getting all my money out.

I’d go for it then.  You may have a hard time getting that price and terms.  But you can try.  I just wouldn’t make that your only option.    Do they have a reason to be selling ?

@Caleb Heimsoth They are investors who moved out of state and now want to get out of this property.

I'm curious to know if anyone has ever been able to structure a deal like this and if a seller would be interested?

I wouldn't take that deal unless I was a highly motivated seller. You are asking the seller to take 33% less for a property in great condition. Is $149k overpriced in the market? A 90% LTV loan is a high LTV and you are offering a relatively low interest rate for the risk. You are also planning on coming back to them for more financing in 3 years, so they haven't really "sold" the property.

I don't see how the seller gets $35,200 interest over 3 years with a 7% interest only loan on $90,000.  I think the seller gets about half of that at $18,900 after 3 years.

There is nothing that you described that would be illegal that I see.

@Nick Bleser
One of the benefits of having the seller participate in the financing is that you both can create a deal that works for both parties. This is definitely possible, but you and other people in the area will be the ones that can verify the value (The asking price may be low/high already and we have no way of knowing to help).

I would structure the terms into one promissory note rather than have two. That way the lender doesn’t risk receiving all the principal back at one time, and you don’t have to renegotiate 6 years in.

The possibilities are endless. As others alluded, since you’re planning on low balling the ask price, why don’t you give them ask price at 3% interest payments for however long you want.

It’s much easier to negotiate on terms when you’ve already given them their asking price.

Hi @James Mc Ree thanks for the response. You're right I may not be using the correct terms for the interest only loan. The way my numbers work and maybe I'm over complicating this whole idea is if I can get my monthly payment at $700 the property will cash flow really well. I figured I'd be willing to "ask" to buy the property for $100,000 but defer any portion of my monthly payments to go to principal for three years. That adds up to $700x12x3=$25,200 + $10,000 down payment which equals $35,200 going to the seller. After 3 years I still owe the seller $100,000 we could enter a new loan or tie it into a single contract where the terms will be a 5 year loan at 7% amortized at 20 years. At that point I could get a traditional loan and part ways with the seller. The seller would eventually get a total of roughly $140,000 in the end and I get the purchase price I want.

I'd like to add that I have good credit and capital. I'm just playing with this idea and was curious if this is a deal that could be realistically proposed.

Hi @Neal Collins ! $149,000 I believe is pretty far off for the area. The city has assessed the property at $86,000 and the area comps are about $100,000. The reason I'm giving this so much thought is the property is very well maintained and the rents are set well which is rare for my area. It does make sense to have a single contract I've just never heard of deferring any portion of the monthly payment to the principal for any length of time.

Thanks again for the responses.

@Nick Bleser , if the Seller is already grossing $1,650/m now, do you really think they'd settle for a (net) $700/m from you instead - just for a measly $10k deposit?

ie. Are you likely to be listened to, if you offer payments that are less than they're netting now?

Kudos to you if you can get it done! All the best...

[BTW, your "defer any portion" explanation failed to make sense to me].

I structure deals like his all the time. This is a great example of having an understanding of how money works.  Some of the greatest opportunities are found "outside the box".  You are thinking in the right direction, but I'm not sure if the numbers you are using is the best way to go.  I usually don't do this, but PM me and we can discuss this.  This is the problem solving challenge I live for.

Why not do it in the thread so everyone can benefit Joe? I like your posts by the way, sometimes they are a little cryptic but your investment philosophy seems pretty close to what I'm trying to do myself.

Originally posted by @Matt P. :
Why not do it in the thread so everyone can benefit Joe? I like your posts by the way, sometimes they are a little cryptic but your investment philosophy seems pretty close to what I'm trying to do myself.

 I would be more than happy to, but the content would involve a series of Q & A that would take forever in this format.  It may also involve addressing some info the poster may not want made public.  I would be happy to discuss this with him, and post the results though.  Consider it my early Christmas gift...LOL.

Thanks @Joe Villeneuve and @Matt P. for the responses. I'd be happy to message with you Joe and would be willing to share.

We hear a lot about creative financing but I'd like to hear more in depth ways buyers and sellers can structure deals. @Brandon Turner and @Joshua Dorkin

Originally posted by @Nick Bleser :

Thanks @Joe Villeneuve and @Matt P. for the responses. I'd be happy to message with you Joe and would be willing to share.

We hear a lot about creative financing but I'd like to hear more in depth ways buyers and sellers can structure deals. @Brandon Turner and @Joshua Dorkin

 Send me the PM

@Joe Villeneuve I sent a note is that the same as a PM?

Originally posted by @Nick Bleser :

@Joe Villeneuve I sent a note is that the same as a PM?

 I replied