100% owner financing , is it possible?

Question

Hi,

I am close on closing my first 4plex with a conventional loan (25% down). I am working on obtaining the second property with owner's financing. I understand that it is rare to find 100% owner's financing, but is it possible? If you happened to come across the 100 owner's financing in the past 2 years, can you please share your stories? What is your term and strategies to persuade the owner to agree with your term?

Thanks

Bill Gulley · Answer

What I'm reading is that your conventional purchase has nothing to do with finding another deal.......but it can.

I just offered terms on a property I'm selling, they prefer to pay cash, well, okay! So, I guess I qualify to post under your 2 year requirement, LOL

Just because a seller is willing to finance the whole boat doesn't mean it will float, doesn't even mean it can leave port. The property has to be worth the price and be profitable.

Sellers provide SF for various reasons, deferred taxes and income mostly. They usually want skin in the game due to risk. Plainly, 100% is doable, I've done that many times, but what you are doing makes a difference. If I am selling it for "them", I can give them a note, take title, rehab, add lipstick or not and then sell it (oh, wait did I just do a wholesale deal, gosh, hope I don't need a license to just buy and sell.......) they get paid off at closing.

Bought a rental portfolio with 100% SF, broke the package and sold off one at a time. Tired landlord.

Bought land for development, elderly lady, wealthy, had a zero basis and a 3/4 million to pay taxes on. She passed the whole thing (even kicked in cash) under a complex Trust arrangement for tax purposes.

Many other examples, but the property has to be right, not just the financing and financing does not add value to real estate!

Commercial loans are much different, especially in a business with real estate, I won't even go there as I don't think that's your target, but 100% financing is sometimes need to get the deal closed out.

How do you convince a seller? 1. Instill confidence!  2. Trust, 3. Knowledge 4. Ability to pay.

That 25% equity in your newly acquired property........assign a second on that property as your down payment, you'll have 100% seller financing giving them more collateral.

Good luck. :)

Brandon Connell · Answer

For me, it was what I needed at the time. I was young and had a newborn, toddler, and fiancé. Our situation at the time caused us to need to move quickly on Christmas. The landlord was a shady character and we had literally 2 weeks to find a place. So based on my financial needs at the time, I made a nothing down offer. What's funny is that my offer was completely rejected. I resubmitted that same exact offer 5 days later, and it was accepted within 24 hours. The acceptance occurred because the seller was in Los Angeles and could not manage the property in Illinois. They were having a hard time selling it.

You are correct. It does completely depend on the situation for both the buyer and seller at the time. Kind of like a snowflake, no deal is the same.

Gino Barbaro · Answer

@Phat Vi@Jake Stenziano

Hi Phat,

owner financing is possible, but only if the seller is motivated and the buyer has some type of track record in investing in that the of deal.

What do I mean? It would be pretty hard for a seller to want to hold paper on his sale if the buyer has no experience with running this type of property.  He does not want to take back the property.

We just were able to secure owner financing on a 281 unit deal, 20% by the owner and 80% bank financing, only because the sellers were motivated, we had great relationships with the banks, we have a detailed business plan that we are currently following and we already own and manage this type of asset.  The owner actually proposed owner financing to us, and we were fortunate to have the banks finance the rest.  The key was that we bought the property right, the banks appraised the purchase at 11.7 million, and the sale price was 11 million.

This type of deal would never have happened on our first transaction, at least this magnitude.  We did have owner financing involved on our first deal, but that was only 25 units, and the same scenario was involved, motivated sellers and buying the asset at the right price, based on actual numbers.

I hope that helps.  Look for owner financing, it is out there, but you have to know where to look and don't be afraid to ask.  If you hear a broker say it's not out there, time to switch brokers.

Gino

Matt Moger · Answer

@Phat Vi,

We were able to purchase an inexpensive property this past December in Winston-Salem, NC for $18,000 with seller financing for 60 months. Our terms were as follows:

$4,000 down, $200 per month for 60 months, 0% interest with $1000 additional down payment money 5 months after we closed & our first payment due 3 months after we closed.

Here's the fun part. Upon signing the purchase & sale agreement, the sellers gave us the name & number of an individual who had asked for owner financing from them. The sellers  were uncomfortable doing that for an individual. They agreed to finance to us because we were a reputable company.

Long story short, We sold the property the same day we bought it to the qualified buyers that were referred to us by the sellers we purchased the home from. We sold the home for $38,000 on a 10 yr note & received $4,000 down & $500 per month for 120 months. We received the $1,000 that we still owed our sellers in the form of two payments prior to our first payment being due. Thus having no personal money in the deal.

Hard to replicate, but if you put enough of those creative offers out there, you never know what may happen. Let's position ourselves to be lucky! :)

Jeff B. · Answer

First, they don't care that you would like owner financing.  *IF* they're interested at all, it's for their needs. I'm on the cusp of something like this if I can get the down payment to take me to zero indebtedness.  The payments on the note then create fun money for our retirement.

Phat Vi · Answer

Guys,

Thanks so much for sharing your experience. This is so helpful and a lot of info to digest, but I am glad that everyone believe that 100% SF exists :). I will search hard for this kind of deal.

@Bill Gulley Hi Bill, thanks so much for taking time responding to this post. Just want to respond to your comment on why I included my "conventional loan" in this post. I just want to show my seriousness on REI. :).

I have a general question to all of you guys. How do you come up with the terms? I understand it depends on the situations.

For example, let's say the seller wants to sell the 15 units complex at 400k. What is your thought of process on making the terms?

Please bear with me as I am learning about this SF process. Really appreciate your help.

Thanks,

Phat

Brandon Connell · Answer

My very first deal was a Victorian mansion for $30,000 with 100% seller financing and nothing down. I used a technique that raises the asking price but lowers the terms. The great thing about such a deal if you are planning on holding the property and having the renters pay the seller-financed mortgage is that the total price doesn't really matter. You can even go over market in such a scenario because everything after the monthly payment is pure profit. Of course, if you intend to sell or use traditional financing on the property in the future, it would have to be within the market value boundaries at that time.

Jay Orlauski · Answer

As others are saying.. it basically depends on the individual situation. There are sellers out there willing to do it under the right circumstances, but it's one of those situations where you need to be in the right place at the right time.

I know of someone who may be coming into something for little to nothing down because of their  association with the seller. It will be a seller finance situation and her husband passed - the land is too large for her to take care of and she has moved in with her kids - she has plenty of income and would like to see it go to someone she knows will take care of it.

Another investor I know of, was given three buildings to develop and put in any business he wanted - all for free - simply because the owner doesn't want to sell the land, but doesn't know what to do with the buildings either, so he is letting someone else develop on it for free -  he will get some money when the improved buildings are leased... probably split the rent also.

So there are situations where it can happen, albeit rarely - you just have to be on the lookout for it and be ready to strike when the iron is hot.

Tom S. · Answer

@Phat Vi  For a conventional loan, make sure the lender will allow a 2nd from seller.

I've only completed what you mention with a commercial loan, and I had to have the 25% down first, proving they were my own funds. They then allowed a 15% 2nd from the seller which reimbursed some of my downpayment.  It was still subject to the standard approval: DTI (that I could afford the payment on the 2nd), appraisal, credit, etc.

- Tom

Franklin Romine · Answer

@Phat Vi

My only thoughts are the only decent owner financed deals I have completed were not advertised as  owner financed.  The deals I see advertised as owner financed are almost always in favor of the seller.  I guess what I'm saying is find a property and start peeling the onion with the owner.

Frank

100% owner financing , is it possible?

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