Seller Financing: need advice on how to pitch

[Kevin Prasad]

Hi all, I’m looking to negotiate a deal thats a mix of seller financing and conventional lending. What are some pros that I can highlight from the seller’s perspective.

Here are a few that I’ve come up with:

1) monthly income at a higher interest rate;

2) avoiding a larger tax bill by reducing the purchase price (on paper);

3) a promissory note that they could potentially sell down the road.

Any other major ones I am missing?

I’m waiting to connect with the realtor to get more information about the sellers background / potentially speak direct to build a bit of a relationship. 

For further background, I’m looking to purchase a spot around 750K, but want to seller finance 100-200k of the price to reduce the need for a large down payment / keep myself liquid for renovation costs. 

Would appreciate your guidance/thoughts. Thanks in advance. 

[Tim Delaney]

Personally I have not had much luck with seller financing when there are agents involved - most don’t understand it and think it just makes the deal more complicated.

Did you check with your bank to see if they will mind you having a second loan on the property? Sometimes they don’t like that because you don’t have skin in the game.

As for advantages to the seller - are you going to pay them more for the property, that would be a perk that I offer in addition to making a little extra on interest for the duration of the loan. Remember they are going to be in a second position so they should be getting a good rate. As for taxes, they only delay capital gains, not reduce them entirely. And if you only talking $1-200k it is not a massive initial reduction depending on their basis. I probably wouldn’t mention your third point - it makes it sound like you expect them to hold this note forever and I’m not very certain, but I’m guessing there isn’t a huge market for $100k secondary notes.

Have you considered asking them to finance 90-100% for a short period of time so you can rehab and refi at a higher valuation?

Sorry to be so negative, just wanted to point out some of the drawbacks of what you are proposing, I hope it is at least a little helpful.

[Chris Seveney]

Quote from @Kevin Prasad:

Hi all, I’m looking to negotiate a deal thats a mix of seller financing and conventional lending. What are some pros that I can highlight from the seller’s perspective.

Here are a few that I’ve come up with:

1) monthly income at a higher interest rate;

2) avoiding a larger tax bill by reducing the purchase price (on paper);

3) a promissory note that they could potentially sell down the road.

Any other major ones I am missing?

I’m waiting to connect with the realtor to get more information about the sellers background / potentially speak direct to build a bit of a relationship. 

For further background, I’m looking to purchase a spot around 750K, but want to seller finance 100-200k of the price to reduce the need for a large down payment / keep myself liquid for renovation costs. 

Would appreciate your guidance/thoughts. Thanks in advance. 

A lot of people will agree, but I did want to provide some context for counter arguments that people may have that you should be prepared for:

 1. Some could disagree as getting all cash and putting it in the stock market would yield a much higher return than the rate on a loan.

2. Why would someone take tax advice from a stranger?  Also you would not reduce the price because of the interest payment. that is not how it works.

3. yes the note could be sold, but at what type of discount and what if the borrower stopped paying.

while there are a lot of posts on seller financing, some estimiate less than 1% of all transaction have seller financing and the ones that do are first position only with an average of 30% down payment - most of these are to people who do not have verifiable income.

Thinking you will get conventional financing then seller financing will be uphill battle as the conventional lender most likely will not approve a 2nd mortgage for purchase.

not trying to dissuade you, just wanted to provide some key insights so you do not spend 1000 hours chasing something that is impossible to find.

[John Clark]

Quote from @Kevin Prasad:

Hi all, I’m looking to negotiate a deal thats a mix of seller financing and conventional lending. What are some pros that I can highlight from the seller’s perspective.

Here are a few that I’ve come up with:

1) monthly income at a higher interest rate;

2) avoiding a larger tax bill by reducing the purchase price (on paper);

3) a promissory note that they could potentially sell down the road.

Any other major ones I am missing?

I’m waiting to connect with the realtor to get more information about the sellers background / potentially speak direct to build a bit of a relationship. 

For further background, I’m looking to purchase a spot around 750K, but want to seller finance 100-200k of the price to reduce the need for a large down payment / keep myself liquid for renovation costs. 

Would appreciate your guidance/thoughts. Thanks in advance. 

As a seller I would ask why would I sell to someone who doesn’t qualify for a FHA 203k loan. 

Seller financing joins me at the hip to the buyer. You’ve given me nothing about your experience to let me know you are competent and capable and not a flake. 

So what will be your answer to the inevitable question: why not a FHA 203k loan, or something similar?

[Kevin Prasad]

Thanks for taking the time to reply, all! Really do appreciate it and immediately see the value of this forum. 

In short, I was getting too cute with a seller financing idea. The fact that it would be a second position is a great reality check. I can get regular financing, but was attempting to keep myself liquid for the renos. 

Wishing you all a great holiday season.

Kevin 

[Andy Lanyi]

@Chris Seveney

You have to know why the owner wants to sale. For example it they want to 1031 it onto another property they will never do the financing for you. But you have to start with the motivation of the sale first then work backwards from there.