It happens — and when it goes bad it's almost always the same story: a 3- or 5-year balloon with no exit plan lined up, and the bank says no when the balloon comes due.
The deals that work tend to share three things: the seller owns it free and clear (or close), the note is recorded properly with a real servicer collecting payments, and the buyer walks in already knowing their takeout — a DSCR refi, a sale, whatever — before the balloon date.
The deals that blow up: handshake terms, no servicing (he-said/she-said on what's been paid), insurance and taxes left to chance, or a balloon the buyer has no realistic way to pay. If a seller-financed deal can't appraise or can't qualify for bank financing, that's often WHY the seller is offering terms — price it and structure it with that in mind.
Happy to run the takeout numbers on any seller-financed deal you're looking at — especially if there's a balloon in it. — Dan
Investor · Los Angeles, CA · Member since 2023 · 7 posts · 15 votes
2d
I haven't sold a property on seller finance but my latest purchase was a triplex in Clarksville Tennessee that I bought on seller finance.
The previous owner was a flipper who had bought the property and fixed it up but with a combination of poor market timing and misjudging the demand in the area, overpriced the property and couldn't sell it for over 9 months. Finally, the seller put in the MLS description that they would be open seller financing.
Things I was able to negotiate:
10% down, 4.5% interest rate, 7 year balloon
Things the seller was able to negotiate:
No inspection, I have to take the property as-is, sight unseen.
Ability to take the property back if payments are 30+ days late.
I had to pay lawyers fees to draw up the contract.
Finding these deals is not too difficult. You can search on Zillow or Redfin for Owner Financing/Seller Financing, etc. You can also join Facebook groups for people offering properties on seller finance.
Investor · Los Angeles, CA · Member since 2023 · 7 posts · 15 votes
20h
I have a team now, I didn't when I was acquiring the deal. I more or less came upon it by accident. Luckily, the property was recently flipped, and two out of the three units were occupied so I was not too concerned about rehab but I wouldn't have been afraid of finding a general contractor if the deal was right. If I could go back, I would have the property management and general contractor in place before trying to find a property but sometimes you can't expect these things.
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
1d
Alex, was the seller free and clear on the property before you negotiated the seller financing contract? It seems like most seller finance deals come from A; experienced investors collecting a fat DP upfront to protect them self's (you put down 10% but that 4.5% is nice!), and strong clauses to take the property back if the buyer can't perform out at balloon time, B; older investors holding debt free RE looking to slowly sell which spreads out the capital gains tax over multiple years, or C; combination of A+B.
I don't see other reasons to entertain the strategy.
Investor · Indianapolis · Member since 2024 · 91 posts · 47 votes
1d
@Jaron Walling we come across all kinds of situations where a owner is willing to do seller finance: -Passive income without managing the property -Their spouse passed away and they need the income
-Capital Gains Tax (you already stated)
-The property may not be able to pass a bank appraisal
It happens — and when it goes bad it's almost always the same story: a 3- or 5-year balloon with no exit plan lined up, and the bank says no when the balloon comes due.
The deals that work tend to share three things: the seller owns it free and clear (or close), the note is recorded properly with a real servicer collecting payments, and the buyer walks in already knowing their takeout — a DSCR refi, a sale, whatever — before the balloon date.
The deals that blow up: handshake terms, no servicing (he-said/she-said on what's been paid), insurance and taxes left to chance, or a balloon the buyer has no realistic way to pay. If a seller-financed deal can't appraise or can't qualify for bank financing, that's often WHY the seller is offering terms — price it and structure it with that in mind.
Happy to run the takeout numbers on any seller-financed deal you're looking at — especially if there's a balloon in it. — Dan
Investor · Indianapolis · Member since 2024 · 91 posts · 47 votes
1d
Dan,
"The deals that work" structure that you laid out is the exact plan that we use when putting together an offers. The "HOW" you buy and "WHAT" happens at the end are the two most important aspects to figure out before you make an offer.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3h
They can work for buyers who can’t qualify for regular loans for some reason. I took one last year with the following terms.
25% down, $10k over asking, no inspection, no appraisal, 7% interest with a 5 year balloon. ($580k purchase with $150k down $2860/mo payment give or take.). Gave me money to pay the realtors and still have a cushion if they stopped paying and I had to foreclose. Used a professional servicer the buyer is paying for, included default interest rates.
It's a decent deal for me but it still doesn't excite me. To show you how even that isn't a screaming deal for me/the seller. Every "we buy notes company" that makes an offer wants to discount the balance 10-20%. A 7% interest rate with a 4 year term and a 75% LTV ratio isn't good enough to sell. Imagine if you got 10% down and charged 4%. They might offer you 70%? No thanks.