Advice for first Seller Financing Deal of an Airbnb

[Paul Lim]

I've come across a seller financing deal for a successful Airbnb vacation rental.  The Airbnb is located in a good cottage area ~30 min from a larger city.  This would be my first seller financing op.  

The seller is seeking ~30% down and ~$50k over market value for the house.  It seems he/she is more interested in a decent upfront down payment vs. monthly income so I was thinking about offering 25-30% down but for a lower interest rate of 3%, and a 5-10yr balloon (as long as possible).  

My understanding is that typical seller financing deals should offer 85% of ARV. Would it be reasonable to offer 85% ARV, 30% down and 3% interest? COCr can only work with lower interest rates. Would love to hear from and connect with someone with experience in this arena.

[Marco Bario]

@Paul Lim -

I'd avoid using the word "typical" when talking about seller financing. I've seen hundreds of seller-financed notes. No two are the same. 

Examples: 

I recently bought a note which was written to mature in 5 years, and there are no payments due until maturity. Interest accrues beginning at 1% in year 1, then increases by 1% each subsequent year.

I regularly see notes written at 0% interest.

I regularly see notes where no down payment was made.

I know investors who've bought property using seller financing and negotiated that no payments would be due until the property begins generating income.

...from your position, it's best to understand the seller's needs and offer options to address those while meeting your needs. Also - don't rule out lease option in your scenario.