Working on my first seller finance deal

[Greg Strunak]

Hello, new to the bigger pockets forums. I'm looking to make my first short term rental deal using seller finance. I was able to find some sellers offering some deals with seller finance. I was hoping to get some good insight on how to negotiate these deals to make this a good deal for myself. One seller is offering :

$10,000-$15,000 Down, 12% Interest, 15-Year Term, 15-Year Amortization, 10-Year Prepayment Penalty, Can Sell with Assumption of Loan (After a Certain Number of Years Owned) in Reduction of Years) The price of the unit is at the high end of the market as well.

The other seller is offering:


(25% Down, 9% Interest, 3-Year Term, Interest Only, Willing to Amortize, 1 Point at Closing on Loan Amount. Also asking for a high end price for the unit.

I would love some insight on how to negotiate these deals to make a good deal for myself as well as the seller. I will also add these are vacation rentals, short term rentals. IM ALL EARS

[Justin Webb]

Hi Greg,

When navigating seller financing, especially in the competitive realm of vacation rentals, your negotiation strategy must be pragmatic. Consider the first option: the 12% interest rate is notably high. In a climate where interest rates are already high, this figure can be a significant drag on your returns. Leverage current market rates (20-30 year) as a bargaining chip to advocate for a more favorable interest rate. The 15-year term with a hefty prepayment penalty, while providing a predictable long-term structure, binds your hands. A more nuanced approach could involve proposing a declining penalty structure, offering both parties security and flexibility. To be honest, this first one looks like the seller is trying to lock you into bad terms and penalize you for trying to get out. Either way, the seller will get a hefty pay-off.

As for the second option, the 25% down payment is substantial, potentially straining your liquidity. If you are able to pay this amount it may be better to stick with a conventional loan such as a DSCR. With an interest-only payment structure, tread cautiously; it depends on your end goal. I like short term I/O when I want to keep monthly cost down until I can refinance at a better lending rate. The problem is that I/Os dont build equity. If you're leaning towards a longer investment horizon, pressing for an amortization schedule that mirrors your financial projections is prudent (Again, look at the cash flow). Remember, in seller financing, your acumen in aligning the terms with market dynamics and your investment strategy, while maintaining clarity on risk exposure, is key to sculpting a deal that benefits both you and the seller.

[Andrew Postell]

@Greg Strunak the way we usually negotiate in these types of scenarios is we base our negotiation on what we can get through a NON-owner financed deal.  Meaning, if a regular mortgage would allow 5% down with 2% interest rate...well, then there's no reason to go to any of these options.  Now, that's not the current lending environment but the point is still the same - what lending terms CAN you get?  And then work backwards from there.  If their terms are worse than your regular loan, then you should have your answer.

Hope that makes sense how I am describing it but feel free to ask anything additional.  Thanks!

[Greg Strunak]

Very good insight there. I like the concept of what you can already get with a standard loan. Also looking in to the DSCR what a great option to have.

[Bryan Chattelle]

does anyone have a sleer finance/ subject (not sure where my deal falls under) to contract template?

I am flipping a property and need to close by the 31st of this month to start work on Feb1st.set PP $500,000. $3500/month payments for mortgage and interest payment that i need to pay on sellers behalf. 4-5 month fix and sell time line. 

[Justin Webb]

Quote from @Bryan Chattelle:

does anyone have a sleer finance/ subject (not sure where my deal falls under) to contract template?

I am flipping a property and need to close by the 31st of this month to start work on Feb1st.set PP $500,000. $3500/month payments for mortgage and interest payment that i need to pay on sellers behalf. 4-5 month fix and sell time line. 

Bryan, send me a DM with your preferred email. It is for Texas so I would advise having an attorney look it over to ensure it matches the nuances of the state the property is in. The contract will at least put you in the ballpark.