Using seller financing to sell my portfolio

[Kenneth LaVoie]

Hi all

I have a portfolio of 11 buildings, consisting of 48 units, all with a 2 mile radius in Central Maine. I sold a home once using seller financing and had a horrible experience (I just got the house back in foreclosure) and so had put the idea out of my mind. But I would like to sell my portfolio and I can't let it go for "peanuts" because it provides a steady, reliable income. That being said, we have a lot of equity. Is it a common thing to offer a smaller amount of seller financing to someone so that they end up putting little to nothing down, in exchange for a higher selling price? 

Example. $1,000,000 asking price. Owner has 500K in equity. Buyer would need to put 25% down with traditional financing. Instead seller agrees to to extend 250K in seller financing. Bank takes this as "25% down" and lends buyer 750K, 250K goes to us, 500k goes to pay off mortgages and we hold a 250k note and are second in line. Let's also say that the portfolio might only sell for 800K using traditional financing. (so there's a little bit of margin of safety there)

Does this sound plausible? 

[Daniel Dietz]

@Kenneth LaVoie,

I have never sold anything that large, but I am an 'over-analyzer' and would say it all come down to the math. I have a soon to be retiring landlord that I have been slowly talking to about doing something similar. 

If you sold outright @ 800K and have 300K equity left over, how much are you going to make in whatever you invest it in next? Let's say 8% with a mix of stocks, bonds, etc.... so 24K per year.

If you sell at 1000K, put 250K in your pocket now and invest it at that same 8% and owner carry 250K at say 5% you would be making 32.5K per year, AND have an extra 200K in your pocket. 

The trick is if the buyer can find a lender willing to do this, and if the deal has enough NOI to support both loans.

Good Luck, Dan Dietz