Seller Financed Buy & Hold

[Saim Chaudhry]

Hey BP,

I am playing around with an idea in my head today. A seller financed Buy & Hold. Is this a common thing? I am new to REI and playing with this idea, as my credit is not so great (got a little crazy when I turned 18), but it is on the rise back up and I am much more responsible after my crazy years of maxing out cards.

What are the terms usually like? Are they all usually short term such as 5 years with a balloon payment at the end? Any one have any good articles or podcasts to check out on this specific topic?

Does the seller still maintain ownership and title to the property? Can this seller financing strategy only happen if the property is free and clear? Also, what is the reason for the seller not just keeping the property and keeping 100% of the tenants check for himself, rather than seller finance to you for a lower rate and allowing you to have some cash flow. Is there an exit strategy if I decide to sell the property, can I only sell the seller financed note? Also, if the seller still has a mortgage out on the property, does the "due on sale" clause apply? Perhaps I have this all wrong, but I am looking for some general guidance as I really like the idea of havring a seller financed buy and hold with a tenant already in place.

[Sharad M.]

Hi @Saim Chaudhry 

I have a property that I bought owner finance with over 90% LTV. The terms are 5% 15 years fixed loan.

What are the terms usually like? Are they all usually short term such as 5 years with a balloon payment at the end? Any one have any good articles or podcasts to check out on this specific topic?

The terms will really depend on sellers situation and how well you negotiate. You have to understand the owners motivation for selling and owner financing.

Does the seller still maintain ownership and title to the property? 

Think of seller as a bank in owner financing case.

Can this seller financing strategy only happen if the property is free and clear?

In my case, the seller owned property free and clear, but you can do seller financing with a loan on it, but you always have the risk of due on sale clause.

Also, what is the reason for the seller not just keeping the property and keeping 100% of the tenants check for himself, rather than seller finance to you for a lower rate and allowing you to have some cash flow.

The reason is because an investor sees money making opportunity in that property and the seller is seeing headaches dealing with tenants. You are making their life easier by taking care of their headache. The more you focus on how bad it is to deal with tenants, the better you can negotiate.

Is there an exit strategy if I decide to sell the property, can I only sell the seller financed note?

I  haven't done this, so not 100% sure, but you might still be on the hook for loan since you signed the note and mortgage with the seller.

Also, if the seller still has a mortgage out on the property, does the "due on sale" clause apply?

Yes.

[Saim Chaudhry]

Thank you Sharad for your detailed response.

Also I am in Sacramento if anyone has any county specific guidance regarding the seller financed buy and hold market

[Daniel Moore]

@saimchaudry definitely check out podcast 70. That will give you a lot to chew on related to this type of investing

[Daniel Moore]

@Saim Chaudhry

[Morris Lucas]

I've been trying to find one myself in Atlanta, they are very hard to find it seems, especially in a hot market, as their is no need for sellers to finance because there are always hungry investors willing to pay all cash. I have been looking into nearby markets that seem to have more flexible seller terms, NC, Birmingham, even Indy and a few other markets. If it's sitting vacant, it's very likely you can negotiate terms, down payment or whatever else, just get attorney to write up the agreement.

I just missed one with 4k down at 25k, was pissed. keep checking the marketplace, too, sometime BP members post those kind of deals.

[Shawn Holsapple]

I bought several of these back a few years ago when I first got started and was excited to "own" some properties.

It didn't take me too long to see that I had [knowingly] over paid and bought in neighborhoods that I probably shouldn't have just to get some deals.

It took me a while to unload these properties and realize my mistakes. I still own one of them [the only one out of about 7 that was any good]. It was 10% down with a 20 year amortization and 5 year balloon.

Now, I still have searches setup on the MLS looking for "contract" in the financing section of the listing. I haven't bought one for about two years now. Everything that comes up in the listings are still over priced.

I hope that helps a little.