Seller financing fort lauderdale interest only

[Drew Slew]

Quick question on those who have done seller financing:

- Buying a 0.3 acre downtown fort lauderdale multi family, negotiated an around 1M price w lot of development rights, double lot. seller got it way back early 90s for pennies

- got good credit 800+, w2 job etc put 40% down and mortgage bank offered 6.62% 30yr fixed (CF negative as this would make current rent roll not too much compared to the PITI)

- property is in ok condition, needs 20-30k repairs which seller OKd, and all 3 tenants are month to month, pay bit under market but also ok

- seller would like to do seller financing, interest only at 5.75%, 30yr amortization at 7yr balloon (CF would be positive) - id be paying some principal as well, just to grow some equity

- buying this deal for the future development of the area (las olas, kushner broward crossing) so not really worried even if we overpay for it now, but never done creative finance as i always relied on a strong W2 job to get good loans but obv im used to 3% 30yr rates from covid times not this 6+ environment..

Goal is to hold the property 3-5yrs, and then actually develop it or sell half the land / refinance, pull out HELOC if it appreciates.

Questions:

1) What does he know that i dont? Trying to make sure seller isnt pushing this seller financing without us knowing something they do. Overall we both would win it seems quite big, esp w interest only the cashflow would be positive. he didnt really like we are doing an appraisal as he might be thinking he can pull a fast one on us w his price tag.. again happy to overpay as i see the potential but obv not outrageously. 

2) Can principal be payed down in interest only seller financing? even if its interest only, id want to pay down principal here and there. seems like sellers would offer this interest only route so they have 0 capital gains tax, but id rather pay down a bit of principal in 7yrs. i see its not required but it should allow for principal paydown in promissary note

3) any general advice to look out for on seller financing?

Thanks any input

[Dominic Mazzarella]

Quote from @Drew Slew:

Quick question on those who have done seller financing:

- Buying a 0.3 acre downtown fort lauderdale multi family, negotiated an around 1M price w lot of development rights, double lot. seller got it way back early 90s for pennies

- got good credit 800+, w2 job etc put 40% down and mortgage bank offered 6.62% 30yr fixed (CF negative as this would make current rent roll not too much compared to the PITI)

- property is in ok condition, needs 20-30k repairs which seller OKd, and all 3 tenants are month to month, pay bit under market but also ok

- seller would like to do seller financing, interest only at 5.75%, 30yr amortization at 7yr balloon (CF would be positive) - id be paying some principal as well, just to grow some equity

- buying this deal for the future development of the area (las olas, kushner broward crossing) so not really worried even if we overpay for it now, but never done creative finance as i always relied on a strong W2 job to get good loans but obv im used to 3% 30yr rates from covid times not this 6+ environment..

Goal is to hold the property 3-5yrs, and then actually develop it or sell half the land / refinance, pull out HELOC if it appreciates.

Questions:

1) What does he know that i dont? Trying to make sure seller isnt pushing this seller financing without us knowing something they do. Overall we both would win it seems quite big, esp w interest only the cashflow would be positive. he didnt really like we are doing an appraisal as he might be thinking he can pull a fast one on us w his price tag.. again happy to overpay as i see the potential but obv not outrageously. 

2) Can principal be payed down in interest only seller financing? even if its interest only, id want to pay down principal here and there. seems like sellers would offer this interest only route so they have 0 capital gains tax, but id rather pay down a bit of principal in 7yrs. i see its not required but it should allow for principal paydown in promissary note

3) any general advice to look out for on seller financing?

Thanks any input

If the seller is pushing financing, they likely want steady income without a big tax hit. If the price and terms work, it’s probably just about structuring the deal in their favor. That being said, if a seller is pushy about financing it does raise a yellow flag for me, perhaps they want to finance because they don't want a bank or anyone else looking under the hood. I'm extra cautious when analyzing a deal like this, but a lot of them end up being great.

For interest-only financing, negotiating some principal paydown is a good idea. Even if it’s not standard, a well-structured promissory note could include it. Sellers who don’t need a lump sum upfront may be open to it.

Biggest thing to watch is the balloon payment. Make sure your exit plan aligns with it, whether that’s refinancing or selling. Also, check for prepayment penalties or clauses that could cause issues.