Seller Financing Standards

[Kevin Nelson]

Hi BP! I'm new to the real estate industry and the seller financing option is attractive because I see the option to purchase an investment property with a downpayment smaller than 20%. Lack of capital is my largest blocker to entering the real estate market right now, so less than 20% is appealing. Hard money lending is a possibility, but that decreases my cash flow. At that point, I'd rather use hard money to fund the downpayment and go the conventional route - at this point at least. I'm open to new ideas to learn.

I'm curious to know: what is a standard or average seller finance deal? I realize the true answer is "It depends" because each situation will differ based on the property, the location, the seller's situation, my situation, etc., which is why I ask about a standard/average deal. For simplicity, let us assume that the seller is willing to do a seller finance agreement. What kind of options are available that I could use to entice the seller to accept a 5-10% or smaller downpayment on a seller finance deal?

[Tom S.]

@Kevin Nelson  In addition to the above response, seller financing with under 20% down can be hard to get.  If offered, it's usually because they're asking for above market value, the property condition is poor and no one will buy it, or it's got a bunch of tenant problems.  So be careful.

A lot of times it's just doing  a lot of work to find properties, and making a lot of offers.  I did it for a number of years and typically picked up one property per year.  A few were 10% down.  One I was able to get a commercial loan and combined 15% seller financing with 80% mortgage, for an effective 5% down.

One quick note, the comment of use hard money for the downpayment and then conventional financing for the rest - this won't work.  Both lenders will want a 1st position mortgage.

Good luck!