Seller Financing Structure

[Travis Zurawski]

BP members!! Advice is needed! 

I am a new investor with one property under my belt already, but I am looking to obtain a new property through creative financing options. I want to approach the owner of the home with an offer for seller financing. The owner is a relative, the property is neglected and it could be an amazing investment. Without a lot of freed up capital I wanted to approach the owner with this deal. Any ideas on how to structure this deal in a way that it is enticing to the seller and a great option for myself/additional investors? Any help or examples would be amazing to learn about. 

[Nathan Gesner]

You can start by figuring out what they want. Before making any offers, talk to them and find out what they really want. Do they want $5,000 to pay off some credit card debt? Do they want to pay off their primary residence? Go on vacation? Know that the property will go to someone that will care for it? Monthly cash flow? Reduced taxes?

I spoke with a guy that owned six units for 30+ years. He was in his 70's and asked me to manage his rentals because he was getting too tired. I asked a very simple question: what do you really want?

What he really wanted was to rest but he liked the steady income it provided. He didn't want to sell because he knew Uncle Sugar would take a big chunk of it. So I talked to him about the benefits of owner financing (chunk of cash up front to take a vacation or put in savings, reduced taxes, steady paycheck every month, no involvement with tenants). We negotiated a deal and he even sold the property to me 15% below what I told him it was worth! It created a win-win because I was truly looking out for him and not just myself.

[Steve Vaughan]

Originally posted by @Nathan Gesner:

You can start by figuring out what they want. Before making any offers, talk to them and find out what they really want. Do they want $5,000 to pay off some credit card debt? Do they want to pay off their primary residence? Go on vacation? Know that the property will go to someone that will care for it? Monthly cash flow? Reduced taxes?

I spoke with a guy that owned six units for 30+ years. He was in his 70's and asked me to manage his rentals because he was getting too tired. I asked a very simple question: what do you really want?

What he really wanted was to rest but he liked the steady income it provided. He didn't want to sell because he knew Uncle Sugar would take a big chunk of it. So I talked to him about the benefits of owner financing (chunk of cash up front to take a vacation or put in savings, reduced taxes, steady paycheck every month, no involvement with tenants). We negotiated a deal and he even sold the property to me 15% below what I told him it was worth! It created a win-win because I was truly looking out for him and not just myself.

Excellent example, Nathan. Tired boomer + landlords that own free and clear are my favorite SF seller as well.

Travis- tough to combine proper SF with no capital.  Cut out all expenses, sell stuff, work a 3rd job to save.

Most of mine are 10% down at 6% over 24 yrs.  Theyll say something like "I need $600 a month.  Figure out how long the term will be at 6%".  No balloons generally, but have had 2 with 5yr balloons. A mortgage/DofT  where I own it during the payment period. No land contracts. Good luck!

[Nathan Gesner]

And here's something else I've learned. I originally felt obligated to offer them better terms than a bank would offer. If commercial lenders were offering a 5% loan, I would offer 6%. I also offered short balloons of 5 - 7 years. But that's not what the seller cared about. They wanted to save taxes and make a steady income. So now I'm offering to purchase at prices below market, rates lower than the bank offers, 10% or less for the downpayment, and a balloon of 10 years or more.