Seller finance and then flip?

Question

A partner and I are currently evaluating a property that we think is a great opportunity (at the right price of course) for us to fix and flip. Originally, we were thinking come in with cash to purchase, rehab, and then move the property. Now, I am wondering if it wouldn't be smarter to attempt to secure the property with a portion of the cash we have available, negotiate seller financing (the couple trying to sell the house has held it for 2 years with ZERO income from it), rehab it, rent it out, and then sell as a turnkey.

What is the consensus on this?

Jesse T. · Answer

At a good price - if you have cash for the repairs, this could be a great deal with seller financing.  I would aim for a balloon or interest only for 2 to 3 years at a low interest rate(use the IRS mid-term rate).

Ideally you could establish some rental history with the original financing to make it easy to get standard investor financing.

In some scenarios a joint venture may be a possibility, but this doesn't look like a good case for it.

Ian Ray · Answer

@Jesse T.

That is always the key! At a good price.  Thank you for your input

Ian Ray · Answer

No, they actually haven't tried to rent it out at all.  They purchased it to rehab themselves, with their son as the primary worker.  The son moved after they completed the gutting and framing and the house hasn't been touched since.  As it is not habitable, and still needs a lot of work (wiring, insulation, sheet rock, etc), so they have not had much luck at the price point they were trying to sell at.  Interest dropped sharply due to the husbands intractability.  Now, due to being tired of holding it, the couple have become more open to finding the best way to move the property.

I think it would be a great rental once it is done.  It is about 6 blocks from the local university.

Jesse T. · Answer

If you have the cash for renovations, seller financing for a flip can be a good option.  It should be cheaper and give you a longer time frame than a hard money loan.

It looks like this property won't work as a rental, for whatever reason.  Have the owners been trying to rent it out for the whole time?

Griffin F. · Answer

@Ian Ray Seller financing for short terms can definitely be done on a fix and flip. It is an opportunity for you to leverage at a better rate than an HML or private lender and an opportunity for the seller to receive more money - so long as they're willing to wait 6-12 months to receive their money. It is always worth entertaining as an option. Negotiate!

Colin Smith · Answer

Seller financing I think can be hard to come by, especially when it comes to buying it at the right price. If you can finance the rehab portion and seller finance the rest, that could make for a great long term investment!

Seller finance and then flip?

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