Seller financing terms

[LeeJ Hinkle]

I'm looking to buy my first plex on seller financing.  I've found a property and initiated the conversation with the seller, but I'm at a loss as to what fair terms for a seller-financed deal are.

What have you seen? done? (Rate, down, length of note)

What contingencies do you put in place to protect both parties? (That newbies wouldn't think to include)

How easy is it to refi to conventional after a period of time? (If seller wants to cash out eventually)

[Michael Evans]

You first need to know what is motivating the seller to sell. Is it that they need a lump sum of cash? Are they tired of being a landlord, but the need the monthly cash flow. Once you understand what motivates the seller, then you know how to negotiate. If they need cash flow, ask them to carry as much of the note as possible (up to 100%) for as long as possible. You can make it interest-only with a balloon payment due in 40 years, as long as the monthly interest payment works for them and it works for you. If you can get a property with no money down, no out of pocket cash, and you only net $50 per month, I would take those all day. Give me as many as you have, because the ROI on my invest in infinite. It's like walking down the street and finding $50 on the ground each month.

Now if they need a lump sum of cash, then let the down payment equal the cash they need and do a joint venture with someone with cash to either loan you the money (remember that 40-year interest-only loan) so you can give it to the seller and the JV partner gets a 2nd lien position, or they can take an equity position and get a portion of the monthly profits. Since you're giving the seller a lump sum of cash, you need the loan they're carrying back to be as long as possible and the interest rate to be as low as possible. You will then maximize your monthly cash flow with little (if any) out of pocket cash.

You should always be able to negotiate a great seller finance deal once you know what is motivating the seller.