Creative Real estate financing stratergy

[Beary Bowles]

Hell fellow investors

I’m in a real dilemma and have been trying to sell my 11 apartments for months. The property consists of an 11 apartment building (1bd studios) and a 2bd fire-damaged house. All for sale for 425K. We had multiple buyers take a look at it but no real strong offer to stick.

Now we have entertained seller financing but we have two different terms but not sure what makes sense and would love the feedback. Here are the options.

The first buyer Wants a wrap-around loan/purchase and will purchase the property for 420K, and put 25K down payment. Cover the mortgage payment of $3100 for the first deed of trust. Pay the second deed of trust for 70K difference at a 4%, 30-year, amortization payments (between $300 to $400), till refinanced within 2-year balloon.

Have a memo of understanding to pay the new buyer $1000 for 10 months in order to help rebuild the fire-damaged building.

PROS: cover my mortgage and be done with the building

CONS: have to wait for 2-year balloon to receive the rest of my proceeds (70K). I’m paying 10k in payments back to the buyer after a 25k down payment makes me feel like I’m taking profit off the table.

My buddy negotiated these terms with this buyer and thought it was best to offer these terms ugh.

Second Buyer: Wants a purchase price for 370K, wants to pay down payment based on remaining mortgage amount which is 318K. Wants to cover mortgage statement, wants an “Authorization of Release” to view any outstanding items with a mortgage, and a walkthrough. He hasn’t indicated a balloon to refinance, but I will add that to it.

Not sure what made him offer 370k vs seller financing 425K but we can still negotiate in between.

PROS: cover my mortgage and be done with the buildings

CONS: less time than the balloon, but will have fewer proceeds that the first offer (52K)

I’m getting slightly desperate since cash reserves are getting low and simply tired of the property however I want the best deal to move on to the next deal.

ANY ADVICE WOULD BE GREATLY APPRECIATED OR SUGGESTION OF WHICH DEAL SEEMS BEST.

[Marco Bario]

@Beary Bowles -

I'm not a fan of balloons. If the property doesn't perform, the credit markets tighten, the property can't afford a refinance at higher rates, or the buyer doesn't execute - you won't be a fan of balloons either. 

The wrap is fine, although remember who's on the hook if the buyer's payments stop (you). 

A 4% rate in seller financing is low - especially for commercial property. Also, if there's a higher rate, your buyer will be motivated to improve the property to refinance with better terms. 

Another scenario would be a master lease where you'd still own the property but be relieved from managing it. There can be an option added as well. There are dozens of ways to structure depending on who wants what from the property. Who takes depreciation, amortization, appreciation, income, etc. are all negotiable.