Questions on Structuring an Owner Financed Deal

[Jacob Lapp]

Hey everyone,

I’m on my second multi-family house hack and things are going well! In my new neighborhood there are a few 5-7 unit buildings near me (not on the market) that seem like great opportunities. I plan on going to the owners at some point and pitching owner financing.

I wanted to ask the group on what is good etiquette and how to properly structure a deal like this.

We can use one property as the example. 5 unit building in good shape. The last time they were looking for a tenant I called and they were asking $400 below market for rent. If those numbers stick to the rest of the building they are missing out on a lot of money. And to then use those numbers and other comps to arrive at the current value of around 380k.

My initial thought is to call again, see the status of the landlord and how they feel about the property (last sold 25 years ago) I’m assuming this place has done well for them and it might be time to get rid of the headaches. Ask them what it would take to get them to sell.

Then introduce the idea of seller financing. Here is where I want your guys input. For easy numbers lets say we agree at $400k owner financed for 15 years. $2,222.22 a month. With a one time initial interest payment of 50k (12.5% interest). The property taxes are around 5k plus insurance and other fees I’m estimating my monthly expense will be around $3500 and the updated rents will bring my cashflow around $2000 a month.

For the seasoned investors, if someone came to you with this deal how would you consider it? It seems like a win to everyone involved to me. Quick cash and passive income for 15 years to the seller with minimal risk because if I miss a payment it would terminate the agreement and they could keep my money and the property. And good cash flow for me!

My questions are

1.) At what point should I have an attorney and should I offer to pay for the sellers attorney (estimated costs)

2.) If you think my structuring plan is dumb (it very well might be I wont be offended) but explain why and what is a better way to structure this type of deal?

3.) If you have done something like this before how did it turn out?

Thanks!