200 Properties in One deal -Seller Financing

[Doug Emerson]

Its a little early in the game at this point but this is what has happened so far:

Me:  Hmmm... I see 5 For Rent ads on Craigslist with the same title but different properties.  I bet this is an investor.  I wonder if that investor would sell?  Email to seller::  Instead of finishing the rehabs and finding tenants would you consider selling?

Email conversation:

Seller:  I'm willing to sell.  How many properties do you want?

Me:  All of them.  I'm planning to acquire 5-10 properties in the next year.

Seller:  Okay, but I have 200.  I'm only willing to selling all at once.

Me:  It would be very reasonable and doable for me to buy them over a period of time using Cash Out Refi, one after another.

Seller:  Maybe I didn't make myself clear, I'm only willing to sell all at once.

Me:  Ok that would be great but you will probably need to be the bank and do seller financing.

Seller:  That's possible, but I will be asking for a higher price.

Me:  Let's get started with the details.....

=MY Question to the good people in the BP forum:

What should the seller financing paperwork look like?  What do you recommend?

For example, I'd like to ask for no money down and 6 months of no payments but negotiate to a small amount down and 3 months with no payments, higher interest rate.

I'd also like to ask for no payoff penalties.

Let me know what I should ask for and what I should be willing to negotiate down on.

((I'm not asking for help on evaluating the deal at this point, that might be a different conversation once I get some details ironed out))

Thanks everyone for reading and replying!

Doug

[Billy Brown]

@Doug Emerson Here is a hint (and you may know this already) Say yes, i'd like to buy them all but in order for me to give you a number I need to see how much net income these produce.  Put in a letter of intent then get the Profit and Loss statement for the portfolio for last 2 years and the Schedule of Real Estate Owned.  Off the Net Operating Income, divide that number by 12, for monthly income.  Then divide by 1.3 (Debt Servicing Ratio banks will lend on), then divide that number by 6.88. That is the factor for a 20yr amortized loan at 5.5%.  Then multiply that number by 1000 and that will give you debt amount current income will cover.  even though he will do the financing you need to have a backup plan. 

Here is an example of the math:

annual Net Operating Income $120,000. 120,000/12=$10,000 per month Net Income.  

$10,000/1.3 (conservative debt servicing ratio)=$7692. This is how much debt service per month the income will cover and allow for profit

$7692/6.88 (factor on a 20yr am at 5.5%. I can send you the link)=1,118.  x1000=$1,118,000 debt.

This will allow you to start negotiating from a power of truth.  If he is asking $2mm for the bundle then it's overpriced and he needs to sell individually.  Also need to factor in condition of properties and appraised value.  Don't close on it until you and inspector have seen all 200, i GUARANTEE you there are some dogs in that portfolio he is trying to hide.