Newbie With a Potential Seller-Financed Deal

[Jacob Pancheau]

I'm a new investor, am 25, and and am stationed in Washington state for the military.  I want to invest in BIllings, Montana where I was born and raised and plan to live long-term. In anticipation of taking leave in Billings starting next week, I found a "for sale by owner" listing on Zillow and just got off the phone with the seller.  The property is two 2/1 listed for 185,500.  She admits to renting them under market.  One unit is rented for $625 and the other unit just became vacant.  She anticipates they'd easily rent for $750-$800.  I will see the property in person next week and realize that before and following my seeing it, I have a lot of due diligence to do in terms of price, cash flow, etc.  

My chief question right now is in regards to her telling me on the phone that she would prefer to do seller financing to avoid capital gains tax.  Her and her husband are in their 70s, have owned the property for 25 years, and are looking to simplify their lives.  Seller financing sounds like a great option to me as I will not be able to occupy the property in the near term, do not have a full 20% down payment, and do not yet have the track record to secure private or hard money lenders.

In the case that the other aspects (price, terms, property condition, etc.) fall into place, I am curious concerning how I'd move forward with seller financing.  My only other home purchase is a rental property I am 50% on with my brother and his wife.  They did all of the legwork when purchasing as I was not in town for the process.  I am not intimately familiar with the process of buying a house, particularly when a bank is not involved.  Do I need to get a realtor involved to assist me in the process?  What about an attorney for the buy-sell contract? I realize that all of this stuff CAN be done on my own, however, I feel that I am not quite there on the education/knowledge side of things and don't want to start off on the wrong foot.  I have about $15,000 outside of my emergency fund that I feel comfortable putting towards a deal.  I obviously don't want to throw money away but am also aware that professional help can be an extremely good investment.

As an added question, I am wondering if anyone has tips or strategies concerning negotiating in a case like this.  From my extremely basic and preliminary calculations thus far, the property would struggle to cash flow at the current price.  I hear a lot on the podcast that sales in this case are often either "your price, my terms" or "my price, your terms".  I understand I need to talk to the seller more when I see her to learn what she means by "wanting to simplify".  I'm guessing this will help inform what kind of offer I make and am curious of any tips that may help me negotiation a lower price for me and more favorable terms for her.

This is my first forum post so I apologize if it's not as concise as it ought to be or if it lacks necessary information.  Regardless, I'd really appreciate any input.  Thanks!

[Mike Ormsby]

Hey Jacob. I'm a Realtor in Billings and am currently working with another person I met through a Bigger Pockets connection. I think you must be talking about the one on Ave. C. It's definitely over priced. I'm familiar with it and live in the area. Personally I think it would be a good long term investment even if the ROI isn't really high. Not a ton of places are high ROI's, here in town. I think a lot of equity could be gained if you were willing to put a little work into the place. especially if you can do some of it yourself. Be careful though. There are a bunch of brand new high-end studios through 3 bedroom apartments by a developer out of Seattle that are coming into the market soon over by the Lucky's store (just a few blocks away from where this place is). We haven't quite seen the full effect of how that will impact rentals of SFR's or multi-units in that area yet. Contract for Deed is a great way to go but, I agree with previous posts that the sellers probably don't want a long term one. Definitely get with a really good local lender if the seller financing doesn't work out.....there are some that have a little more leeway on $ down, etc that might get you in to a property initially, that others won't. You don't need a Realtor or lawyer but being that you are young and just starting out, I would definitely try and find a mentor, or someone you trust that can help walk with you through the process. Cheers and good luck!