Boston, MA · Member since 2017 · 40 posts · 12 votes
Speaking to the seller of a 3 family. worth 1.3M. They only have $250,000 left on the mortgage and are looking to buy another place out of state outright in cash. (for $400-500 if that information matters) I want to offer to pay off whats left of mortgage plus what it would cost them to buy a property cash else where and then have them being the mortgage holder for the difference. Idea is to use a private loan for the 700-800k to cover the payoff and new property and then pull money out of the property itself using the refinance (I doubt I can afford the 1.3 amount through a refinance) I'll rent out the units and pay the sellers monthly but I'm running into a wall thinking about paying the private loan or the initial money borrowed.
I've been reading so much about creative financing and would like to really throw this idea out to the seller this week. What say you? What blindspots do I have? Has anyone ever done this and it did or did NOT work?
Real Estate Agent · Minneapolis · Member since 2019 · 338 posts · 219 votes
4y
So the benefit here is that you "only" have to get $800k from a private note instead of $1.3mm? I'm guessing the terms on a private note for $800k + the terms on the $500k in seller financing will kill your deal. At 6% interest (best case scenario, likely much higher) your monthly debt service will be incredibly high, likely leaving you with negative cash flow.
Creative financing can definitely make tricky deals work, but more often than not the increased borrowing costs kill all cash flow (and thus kill the "deal").