Seller Financing? Has anyone had success with it?

Question

I recently purchased an investment condo that rented out almost immediately after I did some minor work on it and will cash flow very nicely. (I know some people stray away from condos but I have had actually had a lot of luck with them.)

There are no vacanancies in the building but have had my eye on a two bedroom for sale on the market nearing 150 days - I called the agent myself and told me the seller was stuck on his price - even though it needs some work in it.  She told me that he has declined three offers so far but might be willing to negotiate a little now going into winter.  Knowing the potential to cash flow fairly quickly, I called her and suggested Seller Financing, which she agreed might be a good option for him.

A) What should I be AWARE of in Seller Financing?

B) Perks? I feel like being able to get this with minimal money down, avoiding banks and quickly turning it cash flow is all a win! And the seller is not hit with a fat tax bill right away.

Any feedback on ins and outs of Seller Finanicng or suggestions would be GREATLY appreciated.

Thanks,

K-Man

Kuriakos Mellos · Answer

@Jesse Frickle - I’m talking to my real estate lawyer tommorrow who said he’s very familiar with these deals - so we can go to a bank at any point after any work is done - they appraise it and pay off the seller ?  Perfect.  The amortization schedule is something that both parties agree upon im assuming?  Honestly the thought of doing this over and over - while sort of implementing BRRR seems like a solid

Michael Noto · Answer

There are people I know here in CT who have a lot of success with seller financing and creative deals. The one common link between them is they just focus solely on systems and marketing that focus on these strategies. They spend time on these sole focuses and nothing else. Laser focus is key when trying to exploit any niche of a business and real estate is no different from what I see.

Matt Haddock · Answer

@Michael Noto Hey Mike, I’m in CT as well. Would love to connect.

Kuriakos Mellos · Answer

You guys rock! Thank you -  I am willing to put down a decent down payment as a show of good will. I just feel like this could be a strategy to to scale faster, without putting as much of your money down and avoiding PMI.  Again, if rented fairly quickly - a larger interest rate in the long run really doesn't affect you as much.   @Leo F. - I agree a 5 year baloon payment is not my cup of tea either.  We will see how this pans out. Thanks all.

Ryan Cleary · Answer

@Kuriakos Mellos

Well you have flexibility which is the nice perk of seller financing.  Let me put it this way.  Some of the benefits of seller financing is less underwriting and easier qualification, negotiable terms, you can probably close quicker and your initial closing costs will be lower.

Some other things to consider are most of the time the terms will be less desirable then a bank (not a big deal).

More then likely you will see something like this

4-7% interest amortized over 30 years

5 year loan

Balloon payment at year 5

The balloon payment will come from the cash refi you will more then likely have to do.

Still I would rather have these terms and a lower down payment then better terms with 25% down

Jesse Frickle · Answer

@Kuriakos Mellos

It means the sellers act as the bank so I have five years either to payoff the property or restructure the loan. The loan is amortized on a 30 year loan so my payment is $1000 per month a portion goes towards interest and a portion goes towards the principal. At any point I want to get a mortgage with a bank the bank would pay off the seller by determining what principle is remaining by looking at the amortization chart.  Because I purchased the property under market value and added a bedroom to each unit on the duplex there is plenty of equity to cash out l. I just explained what I wanted to a lawyer and they did all the paperwork. They whole process was simple.

Jerry Ayala · Answer

@Kuriakos Mellos let us know what happens!

Jesse Frickle · Answer

@Kuriakos Mellos

Also I should mention that the sellers had the property paid off that’s why I was able to structure it that way.

Jesse Frickle · Answer

@Kuriakos Mellos when you agree on a price, down payment, interest rate, term 15,20, or 30 year you can enter this information into an amortization calculator you will get a breakdown of how much interest and principal are applied each month so at any point when you want to get a mortgage on the property the bank can look at what month you are at in the amortization schedule to determine the payoff amount.

Kuriakos Mellos · Answer

Hi @Jesse Frickle when you mean you can get a mortgage at any point in 5 years - what does that mean?  Technically under seller financing you don’t owe it out right until the balance is paid off correct? But if you pull out a mortgage - I’m assuming at a higher value - you get ownership?  Thanks

Seller Financing? Has anyone had success with it?

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