I know a property owner who lives outside the US and wants to unload his duplex and I'm trying to find a way to buy it. I'm wondering if seller financing might be my best bet but I'm really new at this so I could be way off. I've been reading as much as I can on here to see how I can do it but I think there are a lot of variables that I'm probably not thinking of because I don't know what I don't know. So hopefully the Bigger Pockets community could shed some light on this.
So here is how I know the owner and all the details I know of regarding his situation that may be helpful.
-My wife and I rented one of the units in his duplex for 7 years.
-He wasn't a big time investor (i.e. owned a large portfolio of assets). He bought the duplex with the intentions that when his sons got old enough to attend the local university they could live in one of the units and have their own space and still be close to home. He also rented his old house that was around the corner from the duplex.
-About 4 years into our stay, his wife got a job offer in her native country and they all moved. He then enlisted a property management company to oversee the property.
-Fast forward 3 years and we are looking at buying a property ourselves. We would have loved to buy his duplex but for a number of reasons didn't think we could (I thought it would have been out of our price range) but we mostly didn't want to tell the owner that we were looking to move as we were paying well below market for the place and didn't want to rock the boat. In hindsight, it probably wouldn't have mattered if we told him (because he ended being really cool/happy about us finding a place) but we just didn't know how he or the property managers would respond.
-A few weeks into our property search we put an offer on a property and it got accepted. We talk to the owner about what we can do to break our lease. We agreed to terms. He was very gracious and congratulated us on buying a home. During that conversation I tell him that the home we bought was a duplex and that we were wanting to buy more properties in the future. So I casually ask if he would consider selling his duplex. He says why didn't you ask me sooner? He tells me that he's actually been wanting to sell it because he doesn't want to file taxes in two countries ever year and it's a pain. Plus his kids aren't coming back here for school now so the reason he bought the property isn't a factor anymore. I proceed to feel dumb.
-He continues to say that he wouldn't ask market value for it and since we both know each other and we've lived there for a long time and know the property we could do it without agents and save some money. So here I am, with an accepted offer on one place and this other potentially appealing offer. The short of it is, he was in the middle of another move across his current country and couldn't really give me a number he's be willing to sell it for and I had an accepted offer on my own property so that's where it ended. I did ask him to let me know when he was ready to sell it because I'd be interested.
I'm not sure if all these details were necessary so sorry if this was long. I just wanted to paint as much of the picture as I could. So here are the main factors I see from the owners perspective to take into consideration.
-Owner is out of the country and doesn't want to file taxes in two countries every year
-Original motivation for owning the property is gone
-Wants to leave real estate agents out of the equation
Some of you may want to know if the numbers make sense. If not, then don't bother with this exercise. That's the other tricky part about this. I don't know what the owner has in mind when he says he'll sell below market value and I'd like to have my finances in order before I approach him again. I've checked two different sources to identify approximate value on his place (zillow and relator.com). I know their numbers should be taken with a grain of salt and it's especially true in this case as there is nearly a 200K difference between them! However, the thing that makes it worth it to at least pursue is the potential to have instant equity if he really does sell below market value and my knowledge of the property. We've had hardly any issue there during the time we lived there so I don't believe there will be much, if any, deferred maintenance. I believe based off comps in the area that I could still get more rents out of it without being unreasonable. As far as my contribution to a potential deal is concerned, I have at least 10K, potentially a few thousand more, in cash. I'm also currently trying to see if I could pull some equity out of my current duplex. The short of that is it was listed as a single family with rents well below market. We've since raised rent and want to have it appraised as a multifamily. The potential there is about 20K.
So that's what I know. I'd love to hear your thoughts on how I can best explore this further.
What a great situation! I’m going to break it down for you.
He knows you; you have good rapport.
He does not know or seem to care about getting full price, and has already agreed to save money for each of you by skipping the agent.
You don’t have a lot of money because you bought a new place; he knows you bought a new place.
You know the old property intimately, and have an idea of what the rents and repairs might be.
SO, a undervalued opportunity with no realtor commission is falling in your lap. It is good for you; it is good for him. Start your cash flow calculations. I’d back into the sale price by starting with the cash flow. You must be able to pay property taxes and insurance, plus capital expenditures (a bit of money set aside to replace things that you’ll need over the next few years, such as roof, AC, water heater). There are calculators on BP, you know.
I’d stress to the seller that you need the monthly payments low. The price is irrelevant (to me) while monthly payment is everything (to me). I’ve had 2 recent deals like yours where the sellers offered seller financing. On one, we did a formal appraisal and inspection; on the other I didn’t. On one, we went to a title company and them handle the closing. On the other, the seller had his lawyer draft up the papers to sign and he handled the closing.
I had the title report done, I got insurance on my own, they drafted the deed and arranged for the signing and recording of the documents.
We cash flow nicely, and he receives a steady stream of income at 6% interest only. My payments are very low. I am preparing to refinance when there has been an increase in rents and potential value of the property. In the meantime, he doesn’t have to pay a large capital gain tax on the property this year, and he receives income without having tenants.
I wouldn’t let this opportunity for a great good deal for *each* of you slip away.
don't over pay for seller financing you still need the numbers to work
seller will need to go to US consulate to get notary.. and that can be a hassle for out of country sellers.
@Kerry Baird Thanks for your input, Kerry. I really do appreciate it. I have used the calculators and according to the numbers this would be a good deal. Problem is, about half my numbers are hypothetical. I only assumed that seller financing would be my main option here because I don't know how I'd come up with the 20% necessary for the down payment. I've since learned that seller financing is typically an option if the owner owns the property outright or has paid the loan balance down significantly. I don't think that's the case here because the owner has only owned the property for 10 years. So I've reached out to my previous mortgage broker to talk through what I want to do and see if he knows of any products that can help me. Haven't heard back yet but I think that's probably the best place to start. I've also talked with the real estate division in my state and learned that if we wanted to do the deal with no real estate agents, we are allowed to use the states purchasing contracts even though neither of us are licensed real estate agents. Someone I was talking to about this thought that you needed to be an agent to use the states forms so that's good that isn't the case. They even have an addenda to the contract if you use seller financing, which is cool. So I think I'm making some good progress toward finding some more solid numbers than the ones I'm currently working with. Again, I appreciate your input. I'll keep working at it.
@Jay Hinrichs Hi Jay. Thanks for jumping in on this. Can you tell me a little more about the notary process for out of the country sellers? For example, is there only one US Consulate per country or are there usually multiple consulates throughout the country?
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing