How to convince seller to owner finance duplex?

Question

Hey BP peers! I'm an experienced investor in single-family houses, looking to get into multi-family next. I recently met an investor who informed me he'll be looking to sell a couple duplexes and a triplex in the next couple of years as he's getting older. How best should I go about presenting him a potential owner finance deal at a fair market value on one of these properties that would be ideal for both of us? Here's a few main points.

1. He's specifically waiting to sell only one property each year, to not get kicked up into a higher tax bracket and pay more capital gains than he has to. How might owner financing potentially reduce his tax liability?

2. He wants a fair market value, and duplexes here are harder to come by, so I'd be happy to pay accordingly, but want to make sure I'm cash-flowing, but likely might not have 20% down to pay unless I sell or refinance another property. Any creative approaches to financing here that would be enticing to a seller?

All in all, I don't have much experience with owner-financing, but being a 1099 self employed person, owner financing will likely be my best option. Again, the owner is older, and owns these properties outright, so I believe keeping the consistent income might be enticing to him.

Any other considerations I should be thinking of? Thanks y'all!

Chris Seveney · Answer

@John Marlin

What ever happened with this ?

Randall E Collins · Answer

Because he's old and likely a seasoned investor. I would simply just flat-out ask him, he knows the market and will either say yes or no to owner financing.

Joe S. · Answer

If he said the next couple years it doesn’t sound like he’s that motivated at this point. Of course, it would be a good idea to stay in contact with him. You can plant the seed in his mind at this point.

Bill B. · Answer

I’d assume he’d want at least 10% and preferably 20% down. If you put down 10% and dial to perform he’ll probably be negative for the deal. He’ll probably want higher than the 6% he can get guaranteed from the bank, does your deal still work at 7%+? Are you going to be paying him more than he’s collecting in rent or is selling to you going to result in a pay cut for him even before the additional taxes.

If you have other properties (you mentioned selling for the downpayment.) why not do a 1031 with those properties for this downpayment. The tax savings alone might be the biggest value.

Rick Pozos · Answer

Talk to him more and get to know him. First, people usually want to sell to someone they like. Next they want others to succeed. With that said, you also want to help relieve this guys pain. What is his pain?? That is the question that you need to know.

If he is managing and fixing at the property, he is tired. When he sells to you he will get a little downpayment NOW so he can go on vacation and visit the family. He will also net close to what he did before with your mortgage payments, BUT he will not have any maintenance or management headaches. He will not get taxed on the whole sale of the property all at once. It can be spread out over time.

Chris Seveney · Answer

Explain to him that he could sell them now and defer the taxes on it. Also, if the gains are more than $1M I work with a company that can do a deferred sales trust which is like a 1031 but he can invest the funds anywhere he wants and avoid taxes on the gains.