Help with creative seller finance terms

[Erin Stewart]

I sent out a mailer to all of the condemned and vacant properties in my city. I got a call back from an older mom and pop landlord who was considering selling one of their two unit properties. I met the sellers and toured the property today. One of the units is vacant and needs about 30K in repairs. I would like to invest 50K total in repairs for the whole property to make it really nice to attract quality tenants.

I'm used to making as-is cash offers with my HELOC and then refinancing into a 30yr fixed mortgage with my local bank. I have done this type of brrr deal with with two other rentals and have a 3rd rehab in progress. The seller does not have a mortgage on this property and it sounded like they were open to entertaining some type of seller financing offer.

1. I will make them an as-is cash offer 

2. I would like to make them a second offer with a higher purchase price than my cash offer. With some type of seller financing. I'm stuck on how to structure this and I don't want the 50K of repairs tied up in my HELOC for too long.

3. I'm picturing that in my second offer the owners would finance the property for one year while I complete the rehab and put new tenants in place. I would then get my standard reappraisal and bank mortgage.

4. It sounds like the sellers do not need to money right away. The one unit had been vacant for two years. It sounds like they want enough money in 5-6 year to move into a retirement home. They have 4 other rental properties that I would be interested in purchasing at some point.

5. Any creative suggestions on how to proceed? Thanks!

[Account Closed]

Originally posted by @Erin Stewart:

@Account Closed Thanks for the detailed write up. I guess what I'm after is how can I use seller financing to my advantage vs. buying the property for 100K and doing a 50K rehab all on my line of credit and refinancing with a 30yr fixed mortgage in  6-12 months? I hear so much about the benefits of seller financing but I'm having a hard time seeing how it will help me in this deal that I want to keep as a rental and it needs a large rehab. 

Seller financing means you are not using your money or credit to buy the property. You use your LOC for the rehab but not for the purchase. That means instead of putting $100,000 on your LOC for purchase and another $50,000 on your LOC for the rehab, you are putting only the rehab $50,000 on the LO, leaving you $100,000 available on your LOC to buy another property if the opportunity comes along.

Typically on an investment property, when using a bank, you are putting $20,000 (20%) down on a $100,000 property, getting bank approval and tying up your credit. Some people won't be able to qualify because they don't make enough monthly money for a bank to do the loan. Or, the bank won't do the loan, or the bank won't lend enough for other reasons and you miss out on the opportunity. 

If you have plenty of cash and can do a cash deal from start to finish you get to decide how to do things. If you can get the seller to do seller financing it's like doing a cash deal where you get to  make the decisions instead of a bank making the decisions. Plus, if you can get a seller to do seller financing it frees up your money for other things.