4 unit purchase with 7year arm and seller financing.

[Michael Marshall]

I am considering purchasing 4 unit properties in order to obtain 6-8K in monthly passive income. I am planning to use a 7 year ARM and seller financing. I plan to pay off the seller financing by using the available cash-flow from the property and refinance into a fixed 15 or 30yr. What are your thoughts? What are some possible exit strategies that can be utilized? Is this process obtainable with the high leverage?

[Chris A.]

@Michael Marshall: I have purchased all of my hold properties with seller financing since my full time student status and lack of W2 income prevents me from obtaining conventional loans...at least for the time being.

The key with seller financing is to really communicate with the seller to understand their needs. Do they need cash to pay off medical bills, are they trying to send a kid to college, or are they just looking for a stream of retirement income. You might be surprised what you find when you really try to understand their interest beneath their hard negotiating position. 

I always ask for a 30 year amortization and then taylor the stop to meet their needs. Most of mine have been at 7 years coincidentally. In that time, I will be able to add more properties to the portfolio, and hopefully get the entity  itself qualified for institutional loans. Worst case scenario, I can sell the property to satisfy the debt if it comes due and I dont like the refi options. 

If you want to add more leverage, look at personal loans help cover the down payment. 

Regarding the 7 year ARM: 7 years of low interest sounds nice, but you probably end up paying for that in loan fees and points. Not sure because I've never got one, but my though is if you can qualify for an ARM why not just get a conventional? Rates are low enough. 

In summary, Id get the owner carry back locked down, start cash flowing the property, and then take your time add more properties to the portfolio and refi them all once you find a cherry conventional loan.