Advice for Using Seller Financing?

Question

Hello All !

I found a charming home and know the owner lives out of state. According to the records bought the home for 44k and is selling for 66k and offering to carry the contract.

This would be my first seller finance deal. Here are the few questions I have been researching:

1.) What tips / pitfalls + avoid at all costs advice would you offer?

2.) Can you negotiate on price with seller financing? if yes, tips?

3.) How much money do you put down?

4.) How is the amount of monthly payments decided? and the end term?

Thank you in advance for your time to respond!

PS. if you have a link to your blog article about this topic, or know of a website that answers these questions please feel free to share too!

Shane Wilson · Answer

If I was aiming for a seller finance deal that gives me long term cashflow I would probably offer anywhere from 5K to 10K upfront and about 40% - 50% of what you think it would rent for as the monthly until paid off no interest. So for a $1000 market rent I would want the monthly to be between $400 - $500. This percentage guideline will as a general rule allow you to cash flow on almost any rental property. Down payments of course are negotiable. A lot of repairs means less down payment. After awhile offer to discount the remaining note. So if you still owe 56K after the down payment and one year of payments offer 30K to settle out early. Most sellers will take the early settlement. How you would approach depends on what criteria and monthly margins your comfortable with. I suggest to stay away from 2 bedrooms. They are slowest to rent and sale plus the turnover rate is highest. There's of course a lot of variables but that's a simplistic explanation of how I would proceed based on my market.

Franklin Romine · Answer

@MELISSA MOORE A few other things I was thinking about with seller financing...Try and target owners with multiple properties. For the first deal with the owner if you have to give the owner a larger down or terms more favorable to them. Develop a relationship. My example is I negotiated a deal with a widow to carry for a one year term. Wasn't excited about the one year but it was a good deal. I knew she owned other properties that she was getting ready to sell. This house was an older home that she had owned for many years. I made some improvements and quickly rented. I sent her pictures with my monthly payments to her and wrote short hand letters just talking about what was going on. 8 months later I refinanced with a portfolio lender. Now a year later I bought two more properties on a 5 year term and I'm looking at a couple others...

Adam Johnson · Answer

I am reading between the lines on the original post. If my assumptions are correct, then my advice will be too. First and foremost, does the deal make sense financially? Don't buy simply because the owner will finance. If the deal makes sense, then negotiate like any other deal, to make money. I have negotiated seller finance deals with very little down, and have made larger down payments on other deals. Never lose sight of the numbers though. If they don't work, seller financing won't make them better if the deal isn't really a deal.

Brian Gibbons · Answer

Hi and welcome to BP Seller financing has to do with you helping the seller get some benefit to assist you on buying their property. Here's a link that will help you asked some questions for seller, it's motivated seller questionnaire. https://docs.google.com/a/reiskills.com/file/d/0B410Qg6zTH1EdFRMOWk2ZUtiOE0/edit?usp=docslist_api If you go to nolo.com written by lawyers, Type in Insan financing, to get information about what lawyers look at for seller financing contracts. I hope that helps

Melissa Moore · Answer

Frank Romine That is excellent advice! The seller in the yellow house owns multiple properties and is looking to sell some as he retires. I had thought I meet him while I am on a business trip to the area tomorrow.

Melissa Moore · Answer

@Shane Wilson I am very thankful for your advice!! I was trying to figure out repayment monthly amount and looking for sites to explain a formula or tactic for positive cash flow. Thank you too Frank Romine I will start drafting a cover letter so the sellers know me better since this would be a long term relationship.Frank, where do you find most of your seller finance deals, on Craigslist or another source? If you don't mind sharing? I did offer today the sellers in yellow house a $0 down but full offer of 50k, I will pay closing fees.I came up with $0 down because I would have to get dumpsters($200 a dumpster) for when hoarder tenant leaves, plus pay $6k for converting from oil to electric. $6-8,000 going into home vs. down. Crossing my fingers I didn't offend them with offer!

Ben Leybovich · Answer

@Brian Gibbons What in the world is this Seller Financing - did I miss that boot camp?!@MELISSA MOORE You seem like a bright person researching in the right direction. Unfortunately, at this moment in time, while you are beginning to smell the wonderful aroma we refer to as the power of RE, you have not been around long enough to know where the aroma is coming from - or something like that lol.I am hoping that these houses are just an academic exercise - you are not ready yet to take action. Study and answers to the questions will become self-evident...Hope to see you around BP :)Good Luck!

Franklin Romine · Answer

@MELISSA MOORE Found my deals by asking. I've done 5 and none were advertised. A couple were MLS listings. I researched the properties and discovered they were free and clear. Next step is start peeling the onion...

Franklin Romine · Answer

What has help me to acquire my owner financed deals was to prepare a real clean cover letter and present it to the seller. I outline my background, goals, offer, terms and repayment plan. Not to stereo type but my sellers have been older ladies, single or widowed.

Melissa Moore · Answer

@Shane Wilson Here is the other house that is 3 bedroom for 66k, would rent 1k. Heard there is an offer with inspection already on it now, so it is a maybe...