Seller Financing Options

[Renard Miller]

My team is looking at a five unit property with an asking price of $266,000. We would like to present 3-5 owner-financing choices/alternatives for him to select from.

Does anyone have experience coming up with choices that vary along term, interest rate, purchase price, percentage down, etc.? Any other variables we should consider? Each of these variables seem fairly flexible, so we are just trying to make sure our offer is in line with seller-financing norms.

For reference, the total rental income is ~$3500 and we are fairly flexible in how much we can put down, though less is obviously better for leverage.

Any thoughts on how best to structure the alternatives?

[Joe G.]

Do you happen to know the reason for the sale? In my experience, understanding the seller's goals can give you some insight into crafting the best owner financing structure. Also, educating the seller on the benefits of holding paper has helped me in the past as well.

I usually offer three options: 1) cash offer with significant discount on purchase price, 2) seller financing with a 10-20% down payment (they will usually counter with a larger downpayment, but then you know where their head is at on the matter), and 3) a creative offer based on what I think their motivation is for the sale. 

Motivation isn't always distressed. I have made offers based on people telling me things like "I would love to get monthly payments from you that will pay for my RV trip across the country, but I need to pay the inheritance taxes and I want to buy the RV". I offered the downpayment of the tax, the RV downpayment, and $1,000 on top. 

If the property is represented by an agent and I am giving them discounted offers to take to their seller I always offer to give them both sides of the transaction. This usually means they will make more if the seller takes the deal. Win for everyone.

As far as specifics on the final offer terms, if you are buying from an investor you should ask them what they are going to do with the proceeds and then see if you can offer an interest rate that is better for the investor that is also safer being backed by the property. I try to get between 5 and 7.5% on seller financed deals. With the lower rates being coupled with larger downpayments. I always ask for 30 year loans and usually get offered 10-20 year amort, but we all know that we are going to refinance in a few years anyway, so I always ensure there are no prepayment penalties (learned this one the hard way).

Hope my thoughts help you get the juices flowing.