Need help wording a seller-financing proposal

[Mark Douglas]

First go at offering a seller financing deal, and I'm a little unsure if I'm wording the offer correctly.  Here are the numbers:

4plex for $156k

- I'm offering to pay ALL of the buyer's/seller's closing costs, and pay both agent commissions (3%).  It's basically a down payment of $14,000.

- The note principal is still based off of the full $156k, since there wasn't a reduction in principal. 

- $156k @ 4% interest, amortized over 20yrs with a 5 year balloon

- They receive a payment of $945.33 for 60 months (total of $56,700)

- When I refi after the 5 years (unless they want to continue), they receive the remaining principal balance of $99,300

Is this a win-win for both sides?  The 5 years might seem a little long to the sellers.  I'd go as short as 3 yrs if they wanted to cash out quicker than 5

Thoughts?

[Devan Mcclish]

@Mark Douglas The first thing to understand about owner financing is price is the most irrelevant term in a contract. Read the "Power of Zero." Great book and it explains it in depth

The two terms you want to see from your side to make owner financing a good deal for you is:

• payment amount per month - you want this number to equal or be less than half of what the rent is, so if the quad rents for 2,000 a month, try to get the payment to be 1,000 a month so you can cash flow on top of building equity.
• interest rate - This is so crucial. You want this to be ZERO. zero interest owner financing is so powerful. This is where the purchase price doesn't matter for you. Let's say you financed this quad fully with a bank at 156k over 20 years with 5% interest. You would pay a total of almost 250k for the quad by the time you have paid the note off. So in theory, you can lift your purchase price to 250k and still not be overpaying for this thing if the interest rate is zero. I know, you're going to say "why would anyone accept zero interest financing???" Well, they do. Sometimes, all they care about is price, the one thing you shouldn't care about

So you would offer on this particular one:

1. the 14,000 dollars down
2. finance 142k at 1,000 a month for 142 months
   1. If they object to the length, do 100 months with a balloon at the end of it
   2. If they object to the deal period, say you will give 175k or even 200k. PRICE DOESN'T MATTER