Seller taking on the Loan- Good idea ? Bad idea?

[Joshua Garcia]

Looking at a property that generates rental income. 2145. They are asking 145k total and are willing to fund me (I pay them off slowly). I’m putting down 60k. Good idea? Bad idea? What interest rate and years should I look for?

[Derek Dombeck]

Good idea as long as both sides are happy with the structure. When talking to a seller about financing, you need to know your cash flow numbers ahead of time. Otherwise you won't know how much of a payment you can afford.  I typically want to make at least $200 per door so I can reverse engineer my deals based on that number. Next, don't offer the seller an interest rate or term of the payments, ASK them what they would like to have. This is because they may be thinking lower interest rates are being paid by the banks so they are in alignment with what they see advertised. I had a seller ask for 3% interest and I would have paid 6% all day long. I have him what he asked for and he was happy. Side note, after I paid him off, he became a private ate investor in our lending business because we took good care of him from the beginning.
Step 2. Always ask for an extension provision in your deal. If you agree to a 5 year balloon payment, simply say to the seller, Mr and Mrs. Seller, since we can't control the economy, in the event of a recession or slow market at the time of our balloon, would you want to take the property back if I can't sell it or refinance it? Typically, they say no. At that point I say, ok can we figure out a way to buy an extension right now so we don't have to get all stressed out in the future? How about I give you 5k towards the principal and bu p the interest rate up 1/2 a point and if I do that you give me 5 more years?
Obviously, what you offer them varies, but this works almost every time.
Happy Investing!