Seller financing approach

[Moises Salazar]

Hey biggerpockets gang! So here is my story. My parents have a neighbor that he is planning to sell the property that he own free and clear. Property is 2100sqft and needs a ton of rehab since everything inside is in good condition however everything original from 1950. Roof is 30 yrs old but structural and foundation is in good conditions and everything else is intact. I have the credit score and make a good monthly living but I have no cash save up but have 2 cash flowing rental properties with one of them having some equity. I want to approach the seller on a seller financing opportunity but don’t know much about it, and don’t know how to present to seller. This property has a ton of rehab to get done but a ton of upside. I would love to make this a live and flip for my wife and I but have no idea how to go about it.

[Nathan Gesner]

Quote from @Moises Salazar:

Seller financing is a negotiation and can be anything the two parties agree to. How much will you pay for the property? What loan terms will the seller accept? How much do they want down? Will they amortize your loan for 15 years or 30? Do they want a balloon payment at some point, or will they carry the loan forever? Will they accept pre-payments?

I recommend you do a google search for "real estate seller financing" and educate yourself through some blogs, then have a conversation to see if the two of you can agree on terms that work for everyone.

Be sure to use an attorney to draft the documents, not the same one the seller uses.

[Richard Schubert]

I have offered sellers the chance to sell to me with owner financing many times and can say it’s pretty unsuccessful for me so far. I lay out the offer terms I am comfortable with right up front. I also have put a spread sheet together showing the totals for both owner financing and bank loan. I always thought that if I can show them on paper the difference and how much more money they can make that it will be enticing. Listen to the BP pod cast show number 77 and there is some good info on approaching sellers.

[Chris Seveney]

Quote from @Richard Schubert:

I have offered sellers the chance to sell to me with owner financing many times and can say it’s pretty unsuccessful for me so far. I lay out the offer terms I am comfortable with right up front. I also have put a spread sheet together showing the totals for both owner financing and bank loan. I always thought that if I can show them on paper the difference and how much more money they can make that it will be enticing. Listen to the BP pod cast show number 77 and there is some good info on approaching sellers.

 There has been an increase in gurus selling seller financing training programs because interest rates have risen. As you mention the reality is there are very few sellers who will do seller financing and my guess is its probably around 1%. So for every 100 properties sold maybe 1 is done via seller finance. 

The best opportunities to get seller financing is those properties that require repairs and traditional financing may not be an option. On top of the the borrower most likely owns it outright or has a small balance left on the loan.

[Richard Schubert]

Quote from @Chris Seveney:

Quote from @Richard Schubert:

I have offered sellers the chance to sell to me with owner financing many times and can say it’s pretty unsuccessful for me so far. I lay out the offer terms I am comfortable with right up front. I also have put a spread sheet together showing the totals for both owner financing and bank loan. I always thought that if I can show them on paper the difference and how much more money they can make that it will be enticing. Listen to the BP pod cast show number 77 and there is some good info on approaching sellers.

 There has been an increase in gurus selling seller financing training programs because interest rates have risen. As you mention the reality is there are very few sellers who will do seller financing and my guess is its probably around 1%. So for every 100 properties sold maybe 1 is done via seller finance. 

The best opportunities to get seller financing is those properties that require repairs and traditional financing may not be an option. On top of the the borrower most likely owns it outright or has a small balance left on the loan.

Also, you tend to have to offer a premium in the selling price with seller financing. The last offer I made on a house was about 15% under asking for a cash offer and asking price if they carried the note. I offered 20% down, amortization for 30y, 7 percent interest and balloon out in 36 months. Cash won.

[Luis Maqueira]

Seller financing is a negotiation and can be anything the two parties agree to. How much will you pay for the property? What loan terms will the seller accept? How much do they want down? Will they amortize your loan for 15 years or 30? Do they want a balloon payment at some point, or will they carry the loan forever? Will they accept pre-payments? 

By Nathan

Well said this is the easy part, and you do the negotiation you put the terms. 

what you need to know is 

At what price I am buying to be able to make money? 

What is my cost to rehab? very very important.  How are you financing the rehab if you don't have capital.?

buying, rehab and re-sale is a business.     It is not just buying a house for rental.  

So measure you risk,  and do it. Is the only way to learn, and look for advice from other fellow Investors.

Luis Maqueria MMP