Structuring a Seller Financed Deal that's too good to pass up

[Corinne Ulloa]

Hello BP Community,

I am a newbie investor that is looking to jump into the market with a 4-Plex deal in a college town. I have had analysis paralysis and am ready to get this journey started. I have not had any conversations the with seller as of this moment, but am am only interested in the deal as a seller carryback or sub-to; depending upon the situation with their funding.

182k List Price

On MLS for 259 days (as of today)

1 - 3bed/1bth (rented)

3 - 1bed/1bth (all 3 rented)

The rents total about 2,000

The local realtor was unable to tell me anything about the seller's intentions when we spoke, so that makes it difficult to structure the deal taking that into consideration. The only think that I can gleam is that they should be pretty motivated with the number of days that it's been on the market. In any event, if all checks out with the foundation, roof and individual units when I go view the property, then I would like to hopefully get the seller to agree to the following terms:

2500 EMD

6 months of the mortgage up front - interest free 

Then between months 7-24 month begin paying interest at a rate of 6% with a balloon at the end of this term.

If I have not obtained funding to cover the balloon as of this time, I would like to insert a balloon extension with a penalty of 1% in interest for the following 12 months until the end of the 3rd year where the balloon would be due. 

What type of loan product should I look to pursue at the end of the terms? Hopefully loan rates will be more favorable at that time.

My motivations for wanting a seller carryback is that I am looking to purchase a primary home in the next couple of months and do not want to obtain conventional funding that will skew things with my credit and lendability. I'd like to use the 6-months of interest free time to make the exterior look more inviting and if any of the leases aren't renewed in the time frame, fix up the vacant apt to get higher rents.

Would you say that this is a deal worth pursuing? I just don't want to fall flat on my face right out of the gate.

Any comments/suggestions for structuring the deal will be most appreciated and welcomed.

Thanks,

Corinne

[Dan H.]

Quote from @Corinne Ulloa:

Hello BP Community,

I am a newbie investor that is looking to jump into the market with a 4-Plex deal in a college town. I have had analysis paralysis and am ready to get this journey started. I have not had any conversations the with seller as of this moment, but am am only interested in the deal as a seller carryback or sub-to; depending upon the situation with their funding.

182k List Price

On MLS for 259 days (as of today)

1 - 3bed/1bth (rented)

3 - 1bed/1bth (all 3 rented)

The rents total about 2,000

The local realtor was unable to tell me anything about the seller's intentions when we spoke, so that makes it difficult to structure the deal taking that into consideration. The only think that I can gleam is that they should be pretty motivated with the number of days that it's been on the market. In any event, if all checks out with the foundation, roof and individual units when I go view the property, then I would like to hopefully get the seller to agree to the following terms:

2500 EMD

6 months of the mortgage up front - interest free 

Then between months 7-24 month begin paying interest at a rate of 6% with a balloon at the end of this term.

If I have not obtained funding to cover the balloon as of this time, I would like to insert a balloon extension with a penalty of 1% in interest for the following 12 months until the end of the 3rd year where the balloon would be due. 

What type of loan product should I look to pursue at the end of the terms? Hopefully loan rates will be more favorable at that time.

My motivations for wanting a seller carryback is that I am looking to purchase a primary home in the next couple of months and do not want to obtain conventional funding that will skew things with my credit and lendability. I'd like to use the 6-months of interest free time to make the exterior look more inviting and if any of the leases aren't renewed in the time frame, fix up the vacant apt to get higher rents.

Would you say that this is a deal worth pursuing? I just don't want to fall flat on my face right out of the gate.

Any comments/suggestions for structuring the deal will be most appreciated and welcomed.

Thanks,

Corinne

 >The rents total about 2,000

If the rents total $2K for the 4 units, I would run from this deal even if the interest rate was 3% with $0 down.  Why?  Because the expenses will consume all the rent.  1% rule does not come close to being profitable on this property.  50% rule would significantly underestimate the expenses for this property.

Find a different investment.  You will be better off investing in virtually anything else.  

BTW residential RE is not passive.  The return for residential RE has to exceed more passive investment options to justify the effort.

Good luck