Help, creative financing to purchase a duplex?

Question

Hey guys, I am currently trying to buy a duplex and wanted some advice on how I might be able to structure a deal. The property is a duplex and both units are 2 bedrooms 1 bath. The current owner is renting out the 1st floor unit for $700 and the 2nd floor for $600, he said both units will go up $50 in April. He is asking 170k and said other investors are asking for seller financing but his wife isn't to excited about doing that. I would love to get the property but don't want to put out all the money for the 20% down, are there any ways to structure the deal in order for me to put less money down? Maybe I could finance half of it through the bank to give him a chunk of money upfront to appease the wife and then finance the rest from him? Any ideas and details on how to do so will be very appreciated since I am new into the game. Also if I update the units I'm sure I can get 900-1000 for the units. Thanks in advance, Mike

Steve Vaughan · Answer

Is a duplex that needs work that earns less than 1% rent per month a good deal in Philly? Maybe it's in a really nice area?I was under the impression it was easy to get a 1% producer there. That doesn't need work. Either way, I like to offer first through a letter of intent. You can outline 3 scenarios which you would be willing to buy all in one personal letter. Cash, with terms or a master lease option for instance. The price increases with each strategy.Check your numbers and good luck @Mike Lightcap!

Patsy Waldron · Answer

The first thing you need to find out is: Are the other investors asking him to finance the entire purchase price or just part of it? That info will help you structure your offer to be more attractive to him and his wife. For example, you could offer to put 10% down, have them seller finance 15% at x% for 3 or 5 years, and finance the rest through the bank. That way they get 85% of the purchase price upfront and the 15% over a relatively short period.

Patsy Waldron · Answer

No, you don't put down 20% on bank financing amount. The buyer's 10% down + 15% seller financing represent 25% down on purchase price, which is what the bank will want to see. Note that in my example the bank is only financing 75% of purchase price, not 85%- the buyer puts 10% down because almost any bank will want the buyer to have at least *some* skin in the game and therefore won't allow the entire down payment to be from seller financing.

Craig Garrow · Answer

Mike Lightcap Yes. I'm going to offer him a price that I can live with (Current list is $59,750) - so I'm thinking $53,000 with a 6% Seller's Concession on top, so total price would be roughly $56,000. Then, out of that, I'm going to try to get him to hold a 10% second of say, $5,600 payable in 60 payments of $100/month with no prepayment penalty. I'd rather keep my cash to put toward a few fixes the property needs and it should still cash flow close to $300/month with the extra payment on a 15 year note.

Derek Dame · Answer

Has anyone been able to do this with a Fannie/Freddie underwriting process? I have found this easier to do with portfolio lenders. I haven't done much research on it yet.

Herb Smith · Answer

This was so helpful. You guys are great!

Adam Schooley · Answer

@Patsy Waldron in your scenario wouldn't you still have to put a 20% down on the 85% that you would be financing though the bank since it is an income property? I'm in the same boat as @Mike Nightcap where I have an owner of 2 duplexes who might be willing to do some owner financing on both.

Mike Lightcap · Answer

Patsy Waldron and Craig Garrow, yes this is what I was thinking of to go to then with, some sort of way they could carry a portion of it but me finance most through the bank. Craig Garrow this property also needs some work to it in order to update so that I can get higher rents so I want to put the minimum down that I can. Would you be able to talk me through the process you are using? I understand a sellers concession is a seller assist but did you increase the asking price so that the seller is still getting what he wants or are you getting it for under asking with the seller concession, also how does that play into the mrtgage, are you allowed to get the seller concession to apply toward the down payment... please inform me as best you can. Thanks so much. Mike

Craig Garrow · Answer

I'll second what Patsy Waldron said. I'm currently looking at one where I'm going to ask the seller to do a 6% seller's concession and hold a 10% second mortgage short term. , effectively letting me buy it for 4% down. Great property, but needs a little work so 20% down plus repairs just seems too much for me.