Help Structuring Seller Financed Deal?

Question

Hey, so I'm looking at a property. I've estimated some numbers and they're listed in the picture. This is a non renovated 4plex in a goodish area with a 4 car garage. 1 bed 1 bath per unit with low turnover in good, not great condition.

I want to offer $175k. They own it outright.

They are hesitant to sell because they 'like the monthly income,' although i believe seller financing would not only benefit me but benefit them in that they will still get monthly payments from me.

Theyve owned it out right forever as it was inherited and are family friends but theyd like to retire and offload it.

Let's say I have $10k max to make this entire deal happen. I would like a very low downpayment, decent cashflow (enough to where we both get an okay payment per month).  I'm not sure what other expenses on top of the downpayment would look like. I'd like to have a lawyer write up the final contract of course, as well as get it inspected and using a title company.

Should i balloon this? 15 Years? 10 years? What's a low but fair interest rate? 5% too low?

I just need some offers to throw them, as i have a presentation for them.

Any help is tremendously appreciated, as my employment hasn't been long enough, i dont think would i qualify for FHA so this is my only hope for getting into REI.

John Underwood · Answer

@Alexander Schwartz sit down with owners and find out what their needs are. Do they want long term guaranteed income? DO they want to cash out with a balloon payment?

Do they realize if they get a chunk of cash at anytime they will be hit with a large tax bill that year?

I would make 3 or 4 offers.

1. All Cash at a discount. (Find private money, hard money or hard money)

2. 10k down and payments for 20 years with 3% interest

3. 5K down and payments for 20 years with a balloon at 15 years and 3.5%

4. 3K down and payments for 20 years with a balloon at 10 years and 5%

Before throwing out an interest rate tell them bank are paying around 1%, what would they think is fair and negotiate from there to get down to 5% or less.

You could get one of these deals going and say in 2 years you 150k and you offer them 125K to cash them out before the balloon is due.

Listen first then make multiple offers, One offer could be full asking price but in exchange for full price ask them to give you 0%.

Many ways to structure this but  give them multiple options and let them pick or negotiate more based on the offer they like the most.

Alexander Schwartz · Answer

Presentations are what I'm good at! I work in digital marketing so Im always describing things as simply and fundamentally as possible. I'm going to write up a deal that's very similar to the one you mentioned and the one perviously mentioned that I went over. My presentation includes what is the cover, what is seller finance briefly, benefits for buyer and seller, why should you sell to me specifically/why i want it, the team of people involved, and the deal proposal itself with a comp, and a brief note about what an FHA loan and it's numbers as a reference for my own offer.

Thank you all for all the help!! Seriously!

Ola Dantis · Answer

@Alexander Schwartz Hey Alex, first always make sure you're putting yourself in the seller's shoes, as you underwrite this deal.

I'd structure this deal like this:

Purchase: $175k

DP: $10k

Balance for Seller Financing: $165k

Monthly payment: $886 [Loan terms: ($165k amortized over 30 years at 5% Int.)]

Exit: Balloon at 15-years (because they like the monthly payments, so why not)

Try to keep your presentation simple and quick (talk less, listen more) because a confused mind says no.

I learned that most investors are not sophisticated enough when it comes to carrying paper, so you have to be very very simple when describing the process.

Hope this helps. Goodluck. Thanks! - Ola

Jenny Moore · Answer

@Alexander Schwartz  My 2 cents would be- offer a lower amount down- so you can keep some money for anything that might come up (deferred maintenance). You never know until you ask what people are willing to take. They might be ok with $1000, $2000. Then they can tell you want they want. You are offering them monthly income and no headaches of running it- that is very appealing to a lot of people. I would suggest that your monthly cash flow should be above $200. We usually don't look at any deal that doesn't cash flow (minus expenses) at least $300.

Ola Dantis · Answer

Oh, fantastic! Goodluck. I'm sure you'll close the deal.

Mark Holencik · Answer

If they want the monthly income, find out how much they would like. Then structure the deal to get them that.

Alexander Schwartz · Answer

Like i said, they told me they're open to an offer. So maybe I will make one offer though. Their needs as far as i know is that they like the monthly income but are negotiable on the price and they know they are renting it for too cheap. I can only go so high with the payments with the income for the property though. But i think 900-950 should be satisfactory for them.

Mark Holencik · Answer

I would only make one offer. Then see what they say. Use their response to address their wants.

You have to find out what they are willing to sell for. Then you can structure how to pay for it.

Alexander Schwartz · Answer

They don't have a specific asking price. When i talked to them a long time ago, I asked him that if i priced the property that made sense for the income it produced if that would be okay. Since they inherited it a long time ago i would imagine they're not stingy on the price. I want to have 3 deal options though even if they still say they want to negotiate, just to show them I want to work with them and I'm open.

Mark Holencik · Answer

What are they asking for the property?

Help Structuring Seller Financed Deal?

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