How Would You Structure Owner Financing For A Potential STR ?

Question

Currently looking at an owner financed 2 bed, 3 bath with a cottage on property, room for a 3rd bedroom and a pool for 789k. Our aim is to turn it into an STR as we are in the US Virgin islands. Property needs about 250-300k as it was partially finished new construction.

How would you approach?

Julie McCoy · Answer

There are certainly times when seller financing makes sense (and can be quite profitable) for the seller as well as the buyer.  I have no argument with that.  However, the advice on this thread consisted of offering terms of anywhere 0-3% interest, with nothing down, on a $700k+ property.  That is the part I was disputing.  If the potential buyer wants to approach in a way that is likely to get a conversation going, my advice is to offer better terms and to understand that seller financing is almost always going to carry a higher interest rate than a conventional loan.  Who knows, maybe he'll get lucky and have a unicorn seller who is fine with 0 down 0% interest but since he asked for advice on how to approach the deal, my advice is not to expect a unicorn seller.

John Underwood · Answer

No money down , 30 year loan. 0% rate.

Then negotiate from there.

Richard A. · Answer

Same as long term rental. No down payment & 2-3% interest. 30 year amortized. Seller may object to no down payment. But, the down payment is the rehab you'll have to put into it. Naturally, they get first lien position if it's owned free-and-clear. That's best case scenario. If they counter, which they probably will, it's important to find out what's important to them. There's so many ways to negotiate this. A few: purchase price, interest rate, balloon payment, amortization schedule, delayed payments until rehab is complete and property is on rental market, etc..

Julie McCoy · Answer

Assuming the property is owned free and clear, why would the seller finance to you for terms better than the bank?  What's in it for the seller?  Looking at it from the seller side, it's pretty much a losing proposition UNLESS the property can't be conventionally financed at all due to its conditionand it's actually necessary to do creative lending to sell it.

Frankly, if someone offered me terms of owner financing like have been suggested in this thread, I'd not even bother to respond as clearly it would be a waste of my time.

@Joseph Cameron head over to the Notes and Paper forum and you'll find people who actually deal with owner financing on a regular basis.  The fact that you want the property for an STR is not particularly relevant to the discussion; you need to talk to people who buy and structure notes to actually get a good sense of what a not-insulting offer is going to be.

Kerry Baird · Answer

I just got one under contract.  I am paying full price rather than discounting, am putting 20% down and will pay 6% interest only for 5 years.  I am closing in LLC.

She benefits from a chunk of money and cash flow, with the rest of her capital gains coming later, which reduces her tax hit.

I benefit from very low payments while I am getting my STR lightly renovated and furnished, and through the first stretch.

This is a coastal 4 bed pool house in Florida, $500k.  I am putting $100k down and will pay $2000 a month to her.  I will pay taxes with the property, and am getting quotes for insurance right now.

My thoughts about the new construction and unfinished condition. Do you know why?  Why they didn't finish?  Solve their problem...

Luke Carl · Answer

@Joseph Cameron.

In my market it would be like this....

“Money is close to free right now in the 2.s. You can get 10% down. Borrow money from a bank it’s raining money over there and stop wasting my time. Oh and don’t forget to offer way over asking”

Otherwise it’ll be a lot like it would be in a LTR.

But seriously why would you want owner financing right now? Mortgages are dirt cheap.

Sometimes my jokes aren’t great 😂

Richard A. · Answer

@Luke Carl

We'd rather owner finance on favorable terms vs mortgage for several reasons. No underwriting; quicker turnaround; terms are negotiable; its cheaper; it doesn't go against credit report; frees you up to buy another property; etc. Yes, rates are great right now. But, we would prefer getting more properties over the long run. Especially, if the debt service is paid by tenants and still cash flow. The real question is why wouldn't you owner finance (on favorable terms)? Maybe you have deep pockets?? A lot of us on here don't.

Kerry Baird · Answer

I made two offers, one at full price with the owner financing. $500k The other was at a significant discount, long time to close and conventional finance. $450k

The seller got a lump sum now and cash flow for 5 years, plus the tax benefit of not having full capital gains tax to pay. I wrote that out to my agent, similar to how I have done here. She has been a landlord, in a nice area, so the finish isn’t updated...bones are great.  She didn’t want to remodel.  I used what I did know to appeal to an older “tired” landlord.

Joseph Cameron · Answer

@Kerry Baird

Awesome approach. I like the way you've set that up. Would there be a balloon payment at the end of the 5 years?

... I've been trying to get the info out of the realtor but have been unable to thus far. How would you approach?

How Would You Structure Owner Financing For A Potential STR ?

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