Would you accept this seller financing offer?

Question

Buy and hold 2-units

20% down payment

30 year amortized note w/5 year balloon payment

Cash flow is $100 per unit

Most 2 units in this area go for $30 - $40,000 less (traditional financing)

I'm interested in knowing what the pros think.  This is my first seller finance experience.

John Horner · Answer

Agree and Agree!  Retail would be the most I would pay at this financing.  Otherwise I would take a 30% discount.

I am not sure what price range this is in, but you are going to have to refi in 5 years, if you're overpaying that much the bank may not appraise it high enough for a refi.

Corinne Alconera · Answer

OMG … do you know that you are my hero on BP and on JustAskBenWhy????  No, I am not a stalker …. just a great fan!

Yes, I am unable to qualify for traditional financing due to the bank's crazy policies.  Apparently my husband's per diem tax deduction is also unreimbursed expenses as far as the bank is concerned.  However, I would like to keep the cash I do have on hand for repairs, vacancies, etc.

The terms listed are what the seller wants. I will be seeing the property next week and I plan to make an offer with my terms of 0 down and no balloon payment, reminding the seller that the bank's terms of 20% down and a 20-year fixed loan trumps his 20% down with a 5-year balloon.  I'm sure his asking price of $159,000 is due to it being seller financed.  Newer duplexes go for around $120,000 in this area and he has done some renovations to the property recently.

If he does not accept my terms, I am willing to walk away knowing that I had some great insight from some very knowledgeable and experienced investors.

Ben Leybovich · Answer

What is the value to you in this financing package.  Can you not qualify for traditional financing?

Giving a bit on some terms in exchange for value is fine, but I'm having trouble seeing where the value to you is in this...

Corinne Alconera · Answer

Thank you all for such great insight on this subject!  Everyone made a very good point. I guess I just got excited over the fact that I was even able to find a seller willing to do creative financing.  I never even considered how the bank would look at this situation 5 years down the road.  You guys sure opened my eyes!

I realize the importance of educating oneself on creative financing can be costly, but to gain such insight from knowledgeable and experienced investors that is absolutely FREE just blows my mind!  Thank you BP!

Mike Jakobczak · Answer

@Corinne Alconera Remember the deal is always in the buy!!  Having said that just because you are getting approved financing does not make anything a good deal.

Fast forward 5 years, if the property values don't catch up to your purchase price you will be in a lot of pain trying to get a bank to buy into this situation.

I'd walk away with a smile on my face from this one.

Rocky V. · Answer

Run away from this deal.  The only one winning on this is the Seller.

Johnny Aloha · Answer

So you're paying an extra $60-80k just for the opportunity to get seller financing?  I'd find another deal.

Would you accept this seller financing offer?

Most Popular Reply