Owner Financing/Seller Financing

[Alex Geesey]

I will be talking with another investor in the coming weeks who is trying to sell their Duplex (could possibly be a triplex). Looking at the initial numbers for my bank financing (commercial loan because the property will be in an LLC), I won't be able to get the numbers to work by using a loan right away. Looking at it though, I could get the numbers to work in 5-10 years. So I was thinking of potentially seeing if they would be open to seller/owner financing where I pay them a monthly payment for 5-10 years and then refinance with a bank and pay the investor a lump sum final payment. Should the investor agree to this I want to make the process as easy and smooth as possible for them, but I have no idea how the seller/owner financing process should go.

Let's say the investor does agree to this, what is the step by step process for seller/owner financing? (If you could be as detailed as possible, that could be helpful!) Thanks in advance!

[Dan Maciejewski]

It's not as complicated as it seems at first.

1. Verify that your loan type/ lender will accept a seller carry-back and for how much.  There are often limits, and the seller usually (always) has to be in 2nd position.

2. Negotiate terms with the seller.  This could include letting them know why it's good for them, i.e. interest payments, steady cash flow, deferred taxes, etc. .   The most often that I see is 5-7 year interest only (balloon payment at the end) with a 30-year amortization.  There are infinite possibilities, though.   Check out this site to see payments with different terms.  They have all sorts of calculators.

3. Hire an attorney to draw up the note.

4. Close with a competent title company / attorney