Can someone help me decipher what this means (owner financing)?

Question

Hello All,

I'm a relatively novice real estate investor from Virginia and I'm looking at a property for sale and noticed it was FSBO. I emailed the owner asking if he would be interested in an owner financing deal. Here was his reply:

'We can take back a small mortgage and it could even be in 2nd place but we need to get at least 200,000 at closing.  The balance could be over 3- 5 years, let it be a small monthly payment $50. or so maybe 6 %  interest  and then balloon the balance due at the end of the term.'

Additional property details

• Asking $229,000
• 4 beds, 3 baths
• Consistent rental history
• Near a major hospital and university
• All furniture comes with the home (interesting)

What exactly does this mean? What could be my potential options here? All advice is greatly appreciated.

Jon Holdman · Answer

I take that to mean they want at least $200K in cash after the closing.  With an asking price of $229K they would net about $210K after commissions and closing costs.  So, I'd take that to mean they're willing to carry a $10K seller second.  That means they will "loan" you $10K at closing.  You would have two loans, one from your primary lender and a second one from the seller.  But if you're buying this with an investor loan you're probably looking at 20% down or $46K.  You would get a $183K first loan.  The lender might allow a $10K second so you would only need $36K instead of $46K.

Monthly interest on $10K at 6% would be $50.  So, this seems like they're basically offering you a interest only loan.  At the end of three or five years you would have to pay that off in full.

Unless their offering something better than implied by what you wrote this doesn't seem very exciting.