Owner Carry Flip?

Question

Hello all, I am new to BP and this is my first post/question. I am finally looking to jump into the deep end and land my first deal. My question is does anyone know of any viable seller financing options for short-term flips? More specifically,  I came across a deal that the sellers just want out and don't want to do any renovations.  I just need them to carry the loan through the flip while I renovate the property and then sell for a profit.  I haven't heard this option mentioned yet and definitely want to protect myself from the seller changing their mind to sell or want the higher amount once the renovations were completed. Any info/advice would be much appreciated. Sincere thanks, Shawn.

Mindy Jensen · Answer

Welcome to BiggerPockets, @Shawn Smith.

Seller financing means they sell the property to you, your name is on the deed, and they collect monthly payments just like if they were a bank. The property sells for whatever price you and the sellers have agreed to, and that is the end of that deal. Your renovations and profit after you sell doesn't factor into that equation.

Regarding seller financing, that is specific to each deal. You can approach them and ask, but if they just want out of it, they'll probably say no.

A hard money loan might be a good backup plan, if you are in it for the short term anyway. Have you done this before? Do you have any experience? If this is your first flip, a hard money loan might not be the best option.

Mindy Jensen · Answer

Hi @Shawn Smith.

I have never used seller financing before, so I don't know how to set it up. I recommend a real estate attorney. I am pursuing this on a couple of 4-plexes in my area, and if it goes through, that is how I will proceed.

The reason I don't recommend a hard money loan for your first flip is because I have had a first flip. It took 9 times as long as I thought, and cost far more than I expected. (This was way before BiggerPockets and J. Scott's The Book on Flipping Houses came out.)

Your first flip will take longer than you expect. And every minute you have a HML out, it costs you money. If a mortgage is an option, or a HELOC or some other loan, that would be a better bet in my opinion. You won't feel the time pressure. Hard money loans are expensive.

Steve Vaughan · Answer

Welcome @Shawn Smith!  Like @Mindy Jensen points out, proper seller financing will put the deed in your name.  No CFDs or LCs - no Contract for Deed or Land Contract situations.  Those don't put the property in your name until it is paid off.

If it's what you can offer - offer it!  Another idea is to JV with the seller.  @Brian Gibbons is an expert in that area.  Good luck and happy renovating!

Ben Stoodley · Answer

Hi @Shawn Smith, welcome to BP! Seller financing is a popular method used by many of my clients. They set up a seller carry back of about 20-30% of the purchase price, then use our financing for the rest of the purchase, as well as 100% of the renovation costs. Seems to be a fairly common agreement in situations like yours, with a highly motivated seller. To my understanding, this is something that their Realtor negotiates with the Seller/Listing Agent and is put into the Purchase Agreement. Your Realtor should be familiar with this. Being sure and hiring a real estate attorney is never a bad idea. Best of luck!

Melissa Gittens · Answer

@Shawn Smith welcome  Bp!

Shawn Smith · Answer

Thank you both for your quick and thoughtful responses. Mindy, I have only done some house hacking in the past and not yet completed a  non-lived in flip so I was looking at all of my options including hard $. Just curious, why wouldn't you use/recommend using hard $ in this situation? Secondly, do you or anyone know how to contractually set-up seller financing?  I hear many people talking about using this as an option. However, nobody has ever illustrated how you put one together.  Steve, thanks for the JV idea as I hadn't considered this either, but might very well be an option. Likewise, how does this look contractually? Any specific info, recommendation, or guidance is much appreciated. I'm already so amp'd I can't sleep; I can't wait to see how exciting it will be when I actually get something under contract. Much respect, Shawn.

Owner Carry Flip?

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