Seller Financing Interest Only vs Principal Only

[Anthony Stamper]

I'm new to this, especially looking at multiple option offers. What is the best way to present interest only and principal only options to the seller without insulting them or making me look like the novice that I am. Here is the actual deal I'm trying to make happen on a property that needs carpet, paint, new shower, bath flooring, kitchen cabinets. I'm estimating $15k (high) for this. They are asking $84,900 and the ARV is only $83k. I'm looking at this for a buy & hold (15+years).

OPTION 1

1. ‘All Cash’ purchase price: $62,000
2. Full purchase price payable to you at closing.
3. We pay all closing costs.

OPTION 2

1. Purchase price: $70,000
2. We pay all closing costs.
3. $10,000 cash to you at closing.
4. Seller to finance the balance at 8% interest only payments for 5 years (term) with full balance payable at the end of term.

OPTION 3

1. Purchase price: $83,000
2. We pay all closing costs.
3. $10,000 cash to you at closing.
4. Balance to be paid in 180 equal monthly payments.

[Mitch Messer]

Hi @Anthony Stamper. I think you risk giving the seller too many options!

As a buy-and-holder, you probably care most about the cash flow you can generate from this property. Getting 0% financing is always great, but you want it to increase your monthly profit.

Under your Option 2, your monthly debt service will be $400 ($60K note at 8% interest-only). But with Option 3, even though you get 0% financing, your monthly debt service is higher at $405.55.

Unless you are specifically trying to make the monthly payment to them greater than $400, I'd recommend you just make one owner-financed offer for the terms you really want, and then make adjustments if they come back with objections.

So, I propose an Option B:

     1. Purchase price: $70,000
     2. Buyer pays all closing costs.
     3. $10,000 cash to seller at closing.
     4. Balance to be paid in 180 equal monthly payments of $333.33.

Let them respond to that offer, and if they have issues then jump in with interest or a higher price, but only as needed to get your deal.