How would you seller finance this deal??

[Brandon Leffler]

An elderly lady, Jane, owns 4 off market and an empty lot by one of my rentals.

Jane wants to sell to me and escape of the headache of land-lording . She is too old to deal with tenants, maintenance, and she wants to enjoy the rest of her life.

All 4 of the units are rented at $800 per home ,but market rent for each should be $1700.

She wants 1 million for all 4 houses and one empty lot with utilities already on it.

Market price for each house is 240k and tennants are in there until August.

My DTI is pretty high but I was going to try a DSCR loan w creative financing, To delay bigger payments until I get the tennants out.

What do you think is a good seller financing strategy or structure to get these into my portfolio?

[JD Martin]

Jane has lost a couple of marbles. 

She wants to sell you 4 rental properties right at market value despite the fact that none of the properties are performing anywhere near potential. If we were running a cap rate on these you'd have a worse return than just going and getting some CDs from your local bank and YOU would then have the fun of dealing with tenants paying less than 50% of market rates (assuming your numbers are correct).

There's no deal to be had here unless you can bring her down significantly on her ask. Properties get marked to discount because of their condition or performance. The holder of the note makes no real difference; in Jane's case, it might be more advantageous to her to hold the note than sell outright depending on how she can absorb the sale from a tax perspective; in your case you don't have enough income to do a conventional loan so getting a seller carry can give you more properties. So there's some working room there - perhaps you're paying a slightly higher interest rate or a 3 or 5 year balloon or similar. But the purchase price is just cracked. Even if you bring these up to market rents they're still not great performers based on market rates. 

PS: The empty lot has no value to you whatsoever unless you have the skills to build or flip to a builder. It would not at all be surprising to find out the lot has building issues which is why it has remained empty, regardless of existing utilities to the lot. People end up abandoning lots all the time because of title issues, sinkholes, ground contamination, setback and other zoning problems, and a whole host of additional problems.