Seller Financing, where to start and what to expect...
Rental Property Investor · Liberty Lake, WA · Member since 2016 · 56 posts · 39 votes
Hello BP community!
Been interested in learning more about acquiring property's for buy and hold using seller financing. Have you done it and how, what were the terms you set, did you have a lawyer set it up or someone else? Just wanting to get as much info on this subject as I can as I'm leaving my w-2 job soon and going self employed so i'm looking at it as a viable option for financing deals.
Thanks everyone!
Jeff Wittig
Hi Jeff!
Getting creative with seller financing is so fun! You have the option to chose the terms to meet the yield you desire.
While there are certain things you can do to create a "good note" or rather a more marketable note in regards to the terms, it really comes down to what you want out of the note.
We ALWAYS recommend using a licensed mortgage originator (MLO) to create the note and mortgage. They should keep you compliant with all state and federal regulator rules and can ensure the loan is being created and underwritten to the proper guidelines. If you can't find always make sure an attorney helps you draft it. Also make sure you know before hand if you're servicing the loan, or paying someone to do it for you - as that where payments will be sent. Also, will you have it escrowed?
Lastly, having quality paperwork when it comes to sell is important. Keep good records of payments (and we recommend using a third party servicer such as FCI for a nominal fee), and make sure you always keep the originals safe!
Hope this helps! :)
Liz from Note Investing Academy
Hi Jeff!
Getting creative with seller financing is so fun! You have the option to chose the terms to meet the yield you desire.
While there are certain things you can do to create a "good note" or rather a more marketable note in regards to the terms, it really comes down to what you want out of the note.
We ALWAYS recommend using a licensed mortgage originator (MLO) to create the note and mortgage. They should keep you compliant with all state and federal regulator rules and can ensure the loan is being created and underwritten to the proper guidelines. If you can't find always make sure an attorney helps you draft it. Also make sure you know before hand if you're servicing the loan, or paying someone to do it for you - as that where payments will be sent. Also, will you have it escrowed?
Lastly, having quality paperwork when it comes to sell is important. Keep good records of payments (and we recommend using a third party servicer such as FCI for a nominal fee), and make sure you always keep the originals safe!
Hope this helps! :)
Liz from Note Investing Academy
Hello BP community!
Been interested in learning more about acquiring property's for buy and hold using seller financing. Have you done it and how, what were the terms you set, did you have a lawyer set it up or someone else? Just wanting to get as much info on this subject as I can as I'm leaving my w-2 job soon and going self employed so i'm looking at it as a viable option for financing deals.
Thanks everyone!
Jeff Wittig
You probably want to look into Owner Financing, Subject To, Wraps and Land Contracts. I've done a lot of business in Spokane and in the valley over the years. To give you an overview of how the numbers work I put together a spreadsheet on a property I did a while back. You might want to take a look at it to get a sense of why it is so profitable. Also, because of the excise tax when selling in WA it needs to be taken into account when doing the numbers.
Average Cash Flow Per Door In Phoenix Metro AreaIt is a bit of an advanced technique so it requires a lengthy explanation. Too long for here so go to my Profile https://www.biggerpockets.com/users/MikeM500 and follow the link. I can help you from there.
@Liz Brumer wow thanks Liz that was so much good information!
@Mike M. Hey thanks Mike I will check out your page and see what I can learn
@Jeff Wittig, Congrats on getting your contracting business off the ground! I in no way know much of anything about what you are seeking. And it appears that you have brought out some GR8 experts in the area thus far. However, I do know a guy here on BP that has used the method(s) you are seeking to build a GR8 deal of his RE portfolio. @Steve Vaughan, if you wouldn't mind sharing some insight into what Jeff might be able to look into that would be greatly appreciated. Thanks Steve, I have not doubt that your advice to him wouldn't be anything less than most of your post to us on BP INFORMATIVE! Best of luck to you in your future of contracting Jeff, congrats once again!
@Tony Wooldridge thank you so much Tony I am so grateful and blessed that I have the opportunity to go out on my own. Kelsey and I are very excited to scale up all of our businesses. It is a big concern of mine that with me leaving my job of 19 years and going out on my own that I will not be able to obtain the typical Bank financing that I have used on past rental purchases. My goal is to double our rental portfolio from 5 doors to 10 doors in the next 2 years which leads me to seek some help of Knowledge from other BP members. Thanks again Tony your awesome!
@Jeff Wittig, Congrats on getting your contracting business off the ground! I in no way know much of anything about what you are seeking. And it appears that you have brought out some GR8 experts in the area thus far. However, I do know a guy here on BP that has used the method(s) you are seeking to build a GR8 deal of his RE portfolio. @Steve Vaughan, if you wouldn't mind sharing some insight into what Jeff might be able to look into that would be greatly appreciated. Thanks Steve, I have not doubt that your advice to him wouldn't be anything less than most of your post to us on BP INFORMATIVE! Best of luck to you in your future of contracting Jeff, congrats once again!
Thanks for the mention, Tony. You are too kind.
Jeff, I'd definitely get a bank loan or Heloc if you can before you quit. As you know, conventional options won't be available to you for while. They don't ask how much longer you plan on working where you are. Kinda funny.
For WA specifically, there are 2 basic types of SF. A hybrid Land Contract or contract for deed called a Real Estate Contract. You receive a fulfillment deed when you pay it off, but it is still in your name while you are paying. Offers sellers more protection in that they don't have to foreclose on you if you default.
Mike M is knowledgeable I'm sure, but there is NO such thing as a Land Contract in WA, unless you are dealing with land only. Anywho.
The other method is a Note and Deed of Trust like you'd get with a bank. Better for the buyer. Seller must foreclose if you default. I buy and sell with the Real Estate Contract mostly.
The standard NWMLS PSA (Form 21) that realtors use in WA has a specific addendum for seller financing. Just fill in the down payment amount, rate, term, etc and turn it in to a title co. They will have it drafted for about $300. If not using agents (I don't but have purchased listed property with SF), I just put N/A wherever Agency is mentioned,
I generally put 10% down at 6-7% and my average term is about 24 yrs. A couple have had balloons at 5 yrs, but tired landlords like long horizons of known cashflow I have found.
Focus on tired landlords that own free and clear and you should do fine. Good luck!
@Steve Vaughan Wow Steve that was exactly the knowledge I was looking for. Thank you I was not sure about what are typical terms and I'm sure one seller verse another seller may be different but it gives me a really good idea of what someone can expect. Thanks again cant wait to use all this knowledge on my next rental purchase in Spokane WA!
@Jeff Wittig just curious how you went about finding properties/owners who were interested in seller finance? Thanks in advance for any info you can add.
@Jeff Piscioniere Hi Jeff currently I do not have a deal that i would try seller financing. Because I will be leaving my W-2 job soon and going self employed I just wanted to prepare for what may be ahead. As far as how my wife and I are considering getting a deal like this is to reach out to owners of rentals that may be ready to give up being a landlord. Owners that own property free and clear or with a very large amount of equity.
Jeff Wittig
@Jeff Wittig just curious as to how you’re planning on reaching out to those kinds of owners; what means? That’s what I’m trying to learn about because I know seller financing is an incredible opportunity to find deals. Thanks.
@Jeff Wittig just curious as to how you’re planning on reaching out to those kinds of owners; what means? That’s what I’m trying to learn about because I know seller financing is an incredible opportunity to find deals. Thanks.
You can find them the same way you would a cash deal. Look for properties or sellers in distress. Sometimes there are owner financing opportunities in the MLS or direct mail campaigns. A lot of experienced investors ready to retire understand the benefits of owner financing. You just have to approach them. Worst they can say is "no".
@Jeff Wittig just curious as to how you’re planning on reaching out to those kinds of owners; what means? That’s what I’m trying to learn about because I know seller financing is an incredible opportunity to find deals. Thanks.
Hi Jeff, We will basically reach out to these owners with what ever seems appropriate for the situation since there are going to be so many different ways to locate these types of owners. We may find them from friends and neighbors, they may attend our church or maybe we call craigslist adds for rentals or locate them on a list. We just had a condo we were looking at on the MLS that the agent said the owners where retiring from owning rentals and would consider owner financing. These are the types we will target owners that are retiring and wanting out of the rental gig but would love to have that money coming in still every month for their retirement. So depending on the owners situations and how we find the leads will probably dictate if we reach out via a hand written letter, a phone call, text, email or just meetup in person. This is something new to me as well and I am in no way an expert in finding these types of deals but it is something that really gets me excited to accomplish and I know there are lots of opportunity out there for these types of deals.