Creative Question (Would This Work)

[Jeffrey Decedue]

So I have everything worked out with how this method would work but I want to know if y'all think it is more of an uphill battle than its worth.

Essentially it will be seller financing to establish landlord history for a new company. Negotiate with the seller a balloon style financing. The seller will receive asking price for the property, financed over a 30yr period at 3% with the balloon payment due 42mo after sale. Every way I work the numbers it seems to work.

Example:

Seller has currently rented property with a long term tenant bringing in $1025/mo.

Property is $115,000

30yr amortization at 3%, 42mo until balloon.

Monthly payment to seller is $484.84 for a 42mo total of $20,363.28

Balloon Payment is $106,271.21

Seller essentially receives $126,634.49 at the final sale of property after 3.5 years. At the end of 42 months left over rental income totals $22,686.72 (obviously all of this is not usable since repairs will probably be needed during the time period).

However, after 2 years the rental history is established. Personal funds plus rental income can be used to secure the loan at the time of balloon payment.

Over the 42mo the property value increases providing the company with instant equity following the bank transaction. After which a refi can occur and be used to secure another property.

The situation is a win-win. The seller gets above ask and is shielded from the off chance of potential loss in property value. The buyer has little to no money down, establishes company history, and gains the equity.

I understand this process would be an uphill battle since most FSBO properties are individuals looking to take the immediate payment. Just want to see if everyone else thinks the logic is sound. More or less a help me help you process.

[Jody Sperling]

Here are a couple thoughts that might help refine your strategy:

1. You need "two" years' history as it would show on a tax document. In other words, if renters were placed in December 2020, by January of 2022, you'd have 2 years of history. That could allow you to shorten the balloon and attract more FSBO.

2. Consider offering to meet in the middle on the estimated appreciation. 126k is good, but could you make 135k work? A potential FSBO could decide to take a small gamble on a shorter-term seller-finance if they could get above market value.

Best of luck. It is a creative strategy that you may find a place for.