Seller Finance..... (How to persuade seller?)

Flanders, NJ · Member since 2018 · 3 posts · 0 votes

Hello all, I am in process of making an offer on a SFH in Northern New Jersey but am struggling finalizing the offer. I want to offer 90% of appraised value with the seller holding a 30 year 6% note for me. What are some of the reasons that you have used to convince the seller to agree to finance the deal? Much appreciated, John

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

Have you looked at this deal from the seller's point of view? What is the value to the seller of doing this deal? Also, what are real numbers? 90% of appraised value on a house that appraises at $500k is $450k. $50k is a lot of dough.

If I was the seller, the reasons I might take your deal:

1. The appraisal is artificially high, so I'm getting good money from it.

2. I can't find anyone else to buy the property.

3. I expect you might default, which will then let me have made money and then resell it to someone else.

Other than that, it's not a very attractive offer. 6% for me holding the note for you? You might not even qualify for 6% bank financing.

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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
You should probably first figure out why they are selling......... then work up how your proposed idea benefits them.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
Have you looked at this deal from the seller's point of view? What is the value to the seller of doing this deal? Also, what are real numbers? 90% of appraised value on a house that appraises at $500k is $450k. $50k is a lot of dough.
If I was the seller, the reasons I might take your deal:
1. The appraisal is artificially high, so I'm getting good money from it.
2. I can't find anyone else to buy the property.
3. I expect you might default, which will then let me have made money and then resell it to someone else.
Other than that, it's not a very attractive offer. 6% for me holding the note for you? You might not even qualify for 6% bank financing.
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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
And this assumes I own the property outright... or have the capital needed to pay it off.
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Judy Parker
Rental Property Investor · Closter, NJ · Member since 2015 · 884 posts · 722 votes
8y
You could also remind the Seller of the tax implications if they were take a lump sum at closing.
However, some sellers need that lump sum, so they can purchase another property, for example.
You need to talk with the Seller.
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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
I've seen this before.... what's the benefit over a 1031?

I 1031'd into a house now... probably will sell it in the future... if I got rid of the mortgage and did owner finance would that be "better" than another 1031?
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Jonathan Herron
Attorney · NJ · Member since 2018 · 120 posts · 58 votes
8y
@John Kirk as others have stated it depends on why the seller is selling. There is no one strategy to convince a seller to accept the deal you are offering. They will make their decisions based on their own reasons. Without knowing more information it is hard to give advice on the negotiating strategy you should use.
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Marta K.
Edgewater, NJ · Member since 2017 · 38 posts · 17 votes
8y
Hi John,
I am in the middle of reading the book "investing in real estate with no money down" by B.Turner and he mentions that seller financing is the most suitable for homeowners who own their house free and clear otherwise there is a risk on due on sale clause. Moreover seller would be in favor of seller financing because the interest they get from financing is higher than they would get anywhere else. Make sure that your offer is appealing and is win win for both sides.
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John Kirk
OP
Flanders, NJ · Member since 2018 · 3 posts · 0 votes
8y
Thank you all for the response. I appreciate your feedback.
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Jeff Groudan
Investor · Fort Collins, CO · Member since 2018 · 37 posts · 27 votes
8y
Agree on most of comments - step 1 is understanding the seller motivation. In my experience, two of the most common motivations of sellers to accept seller financing offers are:
1) They are stuck on a sales price and won't budge. If you utilize seller financing, you can sometimes get the seller on board because they get their sales price and you get favorable loan terms
2) They don't need the cash right now (retiree, empty nester) and are financially astute enough to see how collecting interest for 5-10 years on their note can be very profitable.
Which argument works completely depends on what the seller needs. If they specifically need to cash-out to buy another home than seller financing is often DOA.
As mentioned, if the have a balance on their underlying mortage
- If they want to pay it off it might require a big downpayment
- It is possible to leave it in place with a Wrap but that is an advanced strategy and while fairly low risk, the due on sales clause is a concern.
On interest rate, my experience is that a seller finance buyer usually has to pay a few points above the going interest rate for conventional/FHA lending so probably closer to 7% these days although it never hurts to ask for lower...
All of this is theoretical so the advice to chat with seller to get more information is the right next step.
Jeff
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