Negotiating with seller/seller finance/first time

[Nat Love]

So I am very new to REI, no experience, and no properties yet, but I just had my first phone call with a seller who may be open to seller financing. She is a very sweet elderly woman, not entirely retired from being a real estate agent. My problem is I am having trouble structuring the deal.

According to her, there is no mortgage on the home. 

The house has been on the market for a few months now. Turnkey. 

Asking price $1,075,000

From my inexperience, I’m not 100% sure, but comps seem to be in the 950K range. 

Rent comps seem to be around $4400

Insurance $12K

She says she owes 300K to the IRS because of a property that she has sold, and she also wants some money to travel with, and she would like to put the remaining monthly payments into a trust for her children. 

Can I find a loan for the 300+K? How can I make this a cash flow positive deal?

Thank you bigger pockets for the help!

[Don Konipol]

Quote from @Nat Love:

So I am very new to REI, no experience, and no properties yet, but I just had my first phone call with a seller who may be open to seller financing. She is a very sweet elderly woman, not entirely retired from being a real estate agent. My problem is I am having trouble structuring the deal.

According to her, there is no mortgage on the home. 

The house has been on the market for a few months now. Turnkey. 

Asking price $1,075,000

From my inexperience, I’m not 100% sure, but comps seem to be in the 950K range. 

Rent comps seem to be around $4400

Insurance $12K

She says she owes 300K to the IRS because of a property that she has sold, and she also wants some money to travel with, and she would like to put the remaining monthly payments into a trust for her children. 

Can I find a loan for the 300+K? How can I make this a cash flow positive deal?

Thank you bigger pockets for the help!

Okay, I’m going to be brutally honest - you need A LOT more education before you even THINK about buying a property.
You need to learn and educate yourself on real estate investment and finance.  Not the fancy non sense from gurus and their YouTube “teasers”, not the arsenal of strategies being used  by experienced investors, but the very basics.

Here’s a quick analysis.  You pay $1,000,000 for the property.  You pay $300k down.  Currently, you can invest risk free in Vanguard Federal Money Market Fund and receive more than 5% interest annually.  So, your “opportunity” cost of forgoing that investment to make a down payment is $15k per year.  If you were to borrow against your home at 6%, your cost is even more - $18k., let’s assume interest only payments.  No let’s say you do get the owner finance for $500,000 and the seller takes a 7% note.  Best case scenario it’s amortized over 30 years. That’s payments of $56,000annually.  So principal and interest (mostly interest) is $71,000 - $74,000 per year.  Property taxes vary from about 1% in many states to as much as 3% (of property value) in Texas.  So let’s say $20,000.  Insurance minimum of $2000 if not a coastal area.  So your net outflow is minimum of $92,000 annually.

Now let’s say the property is in excellent, or near excellent condition.  Repairs, maintenance, and necessary capital improvements should be at least $15,000.  Vacancy loss (down time between tenants ) another 5% or $2500.  Lease up say every other year at 6% broker commission or $2000 per.

So, if everything goes well your annual income from rent is $52,800.  Your expenses average $112,000 annually.  Your negative is $60,000 per year.  

I haven’t even discussed that the seller is (according to your figures) asking $125,000 more than the property is worth, indicating she wants a premium for owner financing the property. 

A major mistake and time waster for inexperienced investors is concentrating so hard on a strategy” that if a potential seller seems amenable to that strategy they ignore the more central question of whether or not that property at the price and terms attainable is a good investment.