HOW TO STRUCTURE SELLER / OWNER FINANCING

[Gary Ahu]

ALOHA,

How would you pitch an offer to purchase a deal directly from an owner?  Hypothetically, the owner is 70 years old and inherited the house from his parents.

1. Conservative ARV 200K

2. Seller offers to sell house for 150K

3. Rehab costs about 50k on high end

4. Market Rent $1,400/mo

What are some benefits for the owner if he provides owner financing? Taxes? Passive Income? No Realtor Fees?

How would you structure such a deal?

What is the highest purchase price you would offer?

Thanks in advance.

[Andrew Kiel]

It's all about discovering the needs and wants of the seller and then working to make a win-win for both of you.  We recently received 30-year fixed rate financing from an 85-year-old couple who's intent was to leave their kids a monthly payment (they didn't want them to receive a large lump sum).  One question I always like to ask a seller is "Do you mind if I ask what you plan on doing with the proceeds?" - if the answer is "I don't know" or "put it in the bank" you can make a GREAT case for owner financing, after all, you can offer a much higher rate of return than the bank.

There are of course a bunch of reasons that a seller finance deal could be beneficial for the seller, not getting hit with big capital gains being one of them.  As you mention, realtor fees another.

As far as the offer goes, make sure the numbers work for you.  We always look for a certain "spread" between the monthly payment out and in.  If it doesn't meet our requirements, we pass.  There is an infinite number of ways to structure a deal like that just make sure the numbers work for everyone.