When does Seller Financing Really Work?????

Question

Answer

@Coricka White just be careful with over leveraging. Hard money debt goes out of control real fast if you don't pay it off. Cheap is not always a good deal and free, is never really free...My advise, stay away from real estate investing (especially MF) until you at least have a small amount for reserves. Even if you find an owner that gives you 100% financing you are still on the hook for any surprises. What will you do if the boiler goes out or a few AC units? That's not something that is covered by the insurance, if you don't have a few thousands of dollars to fix the boiler what will you do? go back to the owner and ask for money? Or better yet go back to the HML and ask them? MF properties have the same number of surprises as SFRs but when a MF surprises you it's a lot more painful...Most MF owners and especially HML people are sophisticated investors and will foreclose on you faster than you can imagine and they will not hesitate to do that.Get a second job, hustle, maybe wholesale a few deals until you build a small amount to cover your a$$ from surprises before you jump in.

Answer

@Patrisha Leybovich & @Ben Leybovich you guys seem to be 'kinda special' cute - that's for sure ;-)

Answer

OK. So - I am torn. I was sitting in bed next to my wife listening to Zuckerman play Schubert on YouTube (as good as that gets), while my wife was apparently on BP paging me. First of, @Brandon Turner - does your wife sit in bed next to you, while paging you on BP, or are @Patrisha Leybovich and I some kinda special...?! @Coricka White - why do you think that buying apartments is the right thing to do in the first place? Let's get that straight first.

Answer

If it looks like an investment property, and it's on the MLS, then ask the real estate agent and ask about terms. It's as simple as that. Sometimes, you won't get a response, sometimes the response will be "make an offer", and other times you'll get specific terms. I recently inquired about a 2/1 that looked to be a previous rental with an asking price of $42k. The response was the seller would carry $20,000 of the note at 7% for 5 years. By my calculations it would have cash flowed at $93 per month. The spread was too thin for me, but it's an example that the opportunities are out there - just ask.

Answer

Check out @Ben Leybovich course CFFU. (Yes, he's my husband. Its based on our own experience getting started investing in RE when we had absolutely nothing. We had to use a ton of creative finance to get started, and yes, it costs money but sometimes you have to pay that money when its your only way in the game. Good luck!

Answer

Coricka White I think others have hit the nail on the head: 1. You'll pay a premium for owner financing. 2. You'll pay a premium from a HML to finance. 3. Your loan terms won't be the best (if you qualify) because metrics like DTI won't work. 4. You're maximally leveraged so cash-flow will be low. 5. If you don't have a downpayment you likely don't have reserves either. 6. It sounds like you're a rookie property owner and rookie property manager (not bad necessarily, but doesn't help. 7. Any loan will be a full-recourse loan so one unexpected capital expense and you're in bankruptcy. 8. Whatever I'm not thinking of off of the top of my head... The net result is that your cost of capital is high, your cash-flow is low, and you don't have reserves. Challenging (high risk) formula to find success.

Answer

Seller Financing is typically an Installment Sale, requires a down payment and the seller holds the 1stTD. It is not intended to be a zero down 100% financed deal and any owner accepting that offer is suspect.

Answer

@Coricka White. Seller financed deals, on properties I want, are difficult to come by. I have 1 seller financed property I bought on 11/15. 20% down and 5% interest, 8 year balloon. I overpaid by about 10k on it. Despite these facts, I am still happy with my purchase. It is in a GREAT area with GREAT schools. I will probably be able to hand it down to my children without any issue.My recommendation is get with a GOOD realtor that will send you owner financed listings. I have one in my area. Great guy. I had to go thru a few for them to understand what I wanted. Most real estate agents do NOT deal in owner financing. It is too much trouble for the 'easy money' types.

Answer

Thanks Gino for the article.Ben Leybovich - to answer your question I'm getting into real estate to build wealth/financial freedom for my family. While I like the idea of owning multiple SFR, I think apartments would produce more cash flow and equity.

Answer

@Coricka WhiteHi CorickaI wrote an article for BP on the topic:https://www.biggerpockets.com/renewsblog/2016/06/2...It does work, you just have to know how and when not use itHope the article helpsGino