Seeking Advice on Structuring Seller Financing

[Jeremy Anan]

Hello BP community,

I'm currently in the process of potentially purchasing a multifamily property, and the seller has indicated they're open to seller financing. This is an intriguing opportunity for me, but I'd like to gather some insights from those who have experience with this type of transaction.

Specifically, I'm curious about:

1. Strategies for structuring seller financing deals in multifamily real estate.

2. Key terms and conditions to negotiate to ensure a fair and beneficial agreement for both parties.

3. Any potential pitfalls or challenges to watch out for in seller financing transactions.

4. Are there any specific calculators or tools you recommend for analyzing the financial aspects of a seller financing deal?

If you have experience or insights to share, I'd greatly appreciate your input.

As always, thank you in advance for your assistance!

[David Ramirez]

When structuring a seller finance deal, the first thing we find is the market rent. Once we determine the rental value, we aim for a monthly payment to the seller at approximately 50% of the market rate. Based on the desired monthly payment, we use a financial calculator to determine the necessary terms to achieve that payment, considering the price the seller is asking.

If interest rates are not specified, our initial offer includes our desired monthly payment along with their asking price, with a balloon payment due in year 20. If the seller's asking price exceeds the retail value, we may still entertain their price if favorable terms are offered. Additionally, we may include clauses allowing for mortgage assignability and a balloon payment extension if the property fails to appraise for a specified price upon balloon expiration.

Find below the 3 single-family seller finance deals that have done so far. 

1st Deal breakdown:

• Purchase price: $330,000
• Loan amount: $305,000
• Monthly payment (P&I): $1,181.55/mo
• 40-year amortization at 3.5% interest rate
• 20-year balloon payment

Market Rent: $2,100/mo

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2nd Deal breakdown:

• Purchase price: $200,000
  Loan amount: $175,000
• Monthly payment to seller: $500/mo
• 0% interest rate
• 7-year balloon
• Currently rented month-to-month for $1,200.
  

Market rent: $1,750/mo

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3rd Deal breakdown:

• Purchase price: $175,000
  Loan amount: $160,000
• Monthly payment to seller: $437.50/mo
• 0% interest rate
• 7-year balloon
• Currently rented month-to-month for $1,400.

Market rent: $1,500/mo

Feel free to reach out if you have any questions!