Owner financing .... interest rates ?

[Igor Gajic]

Hi guys, I'm pretty new to BP and relatively new to Real estate investing, so if you guys have any suggestions and better ideas feel free to say it I'm pretty open minded to anyone's ideas as I am trying to learn along the way ...so here is my situation, I am currently sticking with multi family homes .. I'm looking at a couple multi-family properties where the owners are willing to do owner financing. These properties are in Central Connecticut. I am still in the process of negotiating a price and interest rate. I like to stick to the 5/5/5 offer rule .. so I offered 5% down, 5% interest, rate and 5 year balloon out. The owner looks like he is willing to negotiate ... he is selling his property for 240k @ 8% interest rate and 5 year Balloon out ... he owns the property free and clear. My question is, what do interest rates go for if one is willing to owner finance me preferably in (Connecticut) ? Thank you guys in advance and also feel free to give me your opinions because this is my first time doing owner financing.

[Account Closed]

I've run numbers playing with how I would do owner financing if I were to do it. 

Here is an example based on your property:  starting price:  240k

you agree to 10% down based on that number  24k

then discount the price of the property 40k so your PURCHASE PRICE is 200

the remaining balance to be financed = 176k

Do an interest only loan, but offer him different rates, maybe 5%, 6%, 7%  whatever rate you and he can agree on.  

Agree to the same 5yr balloon.  

This will probably net the seller MORE than the current price (win for the seller).  But it will also potentially save him a bit in cap gains if he's made some money (though it will cost him some in taxes on the interest income).  The interest expense also helps you on your taxes.  

But it lowers  your actual purchase price to a point where you *may* be able to refinance some money back out of the property in 5yrs. 

Depending on the interest rate  you can agree on, it may be cheaper than a normal 25% down w/ 20yr or even 30yr amortization too.  You'll need to balance how much to put down vs the interest rate or longer balloon terms.  

Hopefully this helps.