Wholesale A Seller Finance Deal?

[Reggie Youngblood]

I have some leads coming in from a mailing I sent out, and a couple of the owners are interested in seller financing. Could I put the deal under contract, and assign it to a buyer just like a regular wholesale deal?

[Aaron Mazzrillo]

I start with what it will rent for. Knock off all the expenses you will have while holding the property: Taxes, maintenance, vacancy, management/overhead, & insurance: 40% is adequate. A lot of posters on here say use 50% and that is really a much more realistic number especially if you hold long term. It is the big capital expenditures that don't come up every year which eat up the cash flow. Things like roofs, water heaters, A/C units gone bad, tree roots in the sewer line, etc.

Let's say this property rents for $1,000 / month. After you deduct for expenses, you are left with, let's agree on $500. That means you have a total of $500 to cover any debt service, or the amount you agree to pay the seller every month, and money for groceries if you don't have a job and want to eat.

I might make an offer with my monthly payment being somewhere around $350 per month giving me $150 profit and that would also be the return on any down payment you give.

Here is an example of an offer I made yesterday:
Woman has a $55K house. She owes $16K on a note against the house. It will rent for $800.
I offered her $45K. I would put $16K down to pay off her $16K note, and give her a note for the remainder of the equity, $29,000, payable 5% interest amortized over 180 months with monthly payments of $229.33. I also said I would give her a balloon payment of the balance, $12,152.37 in 10 years.

If I were in fact able to rent the house for $800 and my payments are $229.33, that leaves me with $570.67. Deduct out the expenses, I use 40% ($320), I am left with $250.67 / month cash flow which equates to 18.8% return on the $16K down.

Of course, these numbers are never 100% accurate. There are always surprises and I have found, more often than not, I make less than I expect from a deal.

The upside is, after doing a few of these and holding them for a few years, you get to raise rents and your monthly payments to the seller don't change. Also, you are paying down the loan every month which means you are building wealth through equity accumulation.

There are literally millions of ways to structure a seller financed deal from no payments, no interest, to interest only and balloons. It is up to you what your tolerance for risk is, what the seller needs, and what you can get the seller to accept. If you want to learn more about creative financing, I highly recommend you seek out Peter Fortunato. There is nobody on planet earth who is better at structuring creative deals and teaching you how to do them.