Seller/Owner Financing for Multifamily Acquisitions

[Daniel G.]

Hi BP Community.

My question is about seller/owner financing for multifamily acquisitions. I am looking at a 97 Unit property in Texas that is being offered at close to an 8% cap rate.I visited the property on Monday and realized that it meets most of my criteria. All though I know this alone makes it one of the better deals that you’ll find in the current market there is one other thing that makes this deal unique and interesting. The property is being sold by the owner which leads me to think that this opens an opportunity for seller financing.

I’ve never acquired a property with seller financing before but am familiar with the benefits that this has for the seller. For example, it allows them to defer capital gains tax and instead take payments to create a higher rate of return than whatever instrument they would be using for the funds they receive otherwise.

I am attracted to the seller financing option because of the possibility of reducing my downpayment which would have to be 20-25% using a traditional loan, it saves me origination fees, etc. My questions are the following:

• With interest rates currently at 4-5% do you think it is wise for me to pursue seller financing?
  • Assuming that I would get a regular non-recourse loan at re-fi 2-5 years from closing.
• How should I structure the seller financing offer?
  • 25-30 year Amo
  • What Interest rate?
  • 7-10 year Term.
• Is there another financing strategy in which the seller could finance the down payment, say 20-25% of the price?

As I said, I want to take advantage of the fact that this property is being sold by the owner which broadens the scope of creativity in the acquisition of the asset.

I would greatly appreciate any and all of your input. Thanks in advance,

Daniel 

[Gino Barbaro]

@Daniel G.

Hi Daniel

Remember, EVERYTHING is negotiable and will be affected by how motivated the seller is.  Try to gauge his or her motivation.  I think 4.5% is fair, ask for 30 yr amort, try for a 10 year term.

Always start higher and then back down.

Try to work with a bank that is amenable to owner financing, and you could have the seller carry the entire down payment as a note.  But the bank has to be on board and confident in your business plan and your ability to operate this property.  Ask the seller what bank holds the mortgage and contact them to see if they are interested

Gino