SELLER FINANCING

[Jamal Shabazz]

Hello all! I'm a wholesaler who lives in Richmond,VA. I've been investing for a few months now, and I don't know the basics of structuring a Seller financing deal could someone help me understand? Thanks.

[David Dey]

@Jamal Shabazz  there is a little bit more to owner financing then just that.  

There are multiple forms of owner financing. There is the standard that was mentioned by @Luka Milicevic where the owner owns the property free and clear or with a very high equity position.  (One where the down payment that you give is sufficient to pay off the balance)  and the seller carries back a mtg or deed of trust under negotiated terms.   (Terms is a whole other ball of wax that we can go into later, but suffice to say, terms can be what ever you and the seller can agree on.  It does not have to have a standard interest rate or standard payment schedule.. If you can get the owner to agree, you could make the payments $1 per year for 1000 years at no interest.  Not saying you would just saying you could)

Another type of owner financing is called a wrap around mtg.  Let's say the owner of a house selling for 100k has a mtg of 70k.  You could offer him/her 10k down and have him "wrap the first mtg," which actually means he would be taking a second mtg for 20k but would receive payments for the entire 90k and be responsible for making his payment for the 70k out of that payment.  (Now in a situation like this, you will have to put in some checks and balances in place to keep both sides honest... Such as requiring receipts for the payment to the first on a monthly basis, or having full payment made to a 3rd party servicer who would make the first payment on behalf of both of you.. Etc)

Other options for a high liened property would be a lease option or an agreement for deed.  (There is plenty of education on this site regarding these two options)

Seller carried second mtgs are an awesome option for a no money down deal.

Let's say the owner of a 100k property has a 30k mtg on the property and wants some money to pay off his car and credit card bills but is willing to carry back some money.  This is where you can use the power of private money to make you a phenomenal no money down deal.

We'll say that we get the owner to accept 50k to him with him carrying back the balance of 50k in a second 2% (yes this can be done)  if you can find a private lender to give you 50k at say 8% in first position, (which shouldn't be too hard since they are lending 50% ltv of the purchase price with a feeling that the second would probably step up to protect their interest if you defaulted) you now have a blended interest of 5% on the full 100k  (not bad for a no money down privately funded deal.)

Bottom line there are a number of cool strategies that you can utilize to have the seller assist you in buying the property.  The key is to find their hot buttons to give them what they want or need.  You do this simply by listening with a problem solver's ear.  (If you listen to someone long enough, they will tell you their problems and even how to solve them.)  your greatest tools of negotiation are your ears.

Hope this helps.