New to real estate investing with a focus on the mulit-family (1-4 residential) space. I am curious what typical seller financing terms/structure might look like. I am sure the answer is "it depends" hence the term "creative financing" but was hoping people might offer a few examples to help me think more about how i might approach deals where the seller is motivated and the property as been listed for a long time. Any info would be very helpful. Thank you!
Hey @Glenn Larson You’re right, seller financing really depends on the seller’s flexibility and the specifics of the deal, but I can give you a couple of typical structures to think about:
Interest-only payments: In this setup, you pay the seller interest on the loan without paying down the principal right away, giving you time to stabilize the property or improve cash flow before paying it off or refinancing.
Balloon payment: You might negotiate a lower monthly payment (possibly interest-only) with a balloon payment due after 5-10 years. This can be good if you plan to refinance or sell before the balloon is due.
Low down payment: Seller financing often allows for more flexibility with down payments. You might put down 10-20%, which can be easier to manage compared to traditional financing.
A motivated seller can be open to different terms, especially if the property has been sitting for a while, so just be creative and make sure the deal works for both sides. Good luck!
typically - the property has to be paid off with no mortgages or liens. the seller has to not need the cash up front to buy another property (or use it for anything else). the seller has to be OK with monthly payments. the seller has to trust that you / the buyer is going to make the payments and also pay the taxes and be a good steward of the property since that's their security on the loan.
usually you'd put a balloon in, but i bought one deal where the numbers worked out for us to fully amortize it over 12 years. so... it depends.
Hey @Glenn Larson You’re right, seller financing really depends on the seller’s flexibility and the specifics of the deal, but I can give you a couple of typical structures to think about:
Interest-only payments: In this setup, you pay the seller interest on the loan without paying down the principal right away, giving you time to stabilize the property or improve cash flow before paying it off or refinancing.
Balloon payment: You might negotiate a lower monthly payment (possibly interest-only) with a balloon payment due after 5-10 years. This can be good if you plan to refinance or sell before the balloon is due.
Low down payment: Seller financing often allows for more flexibility with down payments. You might put down 10-20%, which can be easier to manage compared to traditional financing.
A motivated seller can be open to different terms, especially if the property has been sitting for a while, so just be creative and make sure the deal works for both sides. Good luck!
If the owner is open to hearing options then you can lead the way with your terms and balloon structure and see how they feel about it. Negotiations can go from there, but start with something very favorable to you. Use an online mortgage calculator to get an amortization schedule and present it with the offer. Maybe something like this.
I will pay X with a down payment of Y. The loan balance will be amortized on a 30 year term with a 3% rate. I will make Z in mortgage payments every month based on this amortization schedule. In the first 5 years you will collect lots of interest, and make more money than the actual purchase price because you, the seller, are now acting as the bank. You will also have the monthly income like owning a rental property. The tax bill will be spread out because you are not collecting all the money at once. You can plan several years in advance what to do with a large sum of money I will pay later. At the end of a set number of years I will pay you in full the remainder of the loan balance which we can track with the amortization calendar.