Buying on seller financing for my rehab

[Danny O'Bannon]

I recently was working with a seller and gave her 2 offers. One all cash for $100,000, and another offer for $110,000 but she would carry a note, and get paid when the project was finished. She didn't seem interested at all, and said just send me something in writing that explains this. I never bothered cause I could tell she was going to waste my time. However, she called me after about a month and was wondering why I never sent her anything.

So my question is, whats the best way to structure a deal where she gets paid 110k for the house, but on the back end, after I fix it up and sell it to a retail buyer.

Secondly, how best can I describe those terms to her so she can understand it. The answer to the first question may sum up the second question, but I had to ask.

Thanks in advance. I know there are some creative studs and studets who have put these deals together. Would love for you to share

[Darrell Shepherd]

Lots of ways to structure this, and things do vary state to state. First off, you need to see what her needs are for the next six months and what her expectations are. There is a negotiation to be made. First off, she may need a little cash, but can wait on the rest, etc. She may want payments, may not. If she has an immediate need for $10k, but not the $100k, then you need to know that to structure your offer.

Saying that, my first offer would be something like $110k paid when I sell it, I use my money and time to fix it up, market it, etc. It'd be a sale with an owner carried mortgage at $110k, no payments, no interest for 6 months, after that interest only at 6% (saying it rarely goes that long, but you want coverage if it does, but she gets some assurance that I'm trying hard to sell it ASAP, which is exactly the case). Worth a try, but interest only at 6-8% with a 12 month balloon is still a win.

Your description on how it'd go down is pretty accurate. You need to account for insurance and closing costs and such and just cover all bases, but that's pretty much how it goes. You close it, she gets a security deed, you get a house with an owner financed mortgage. When you sell it, its paid off at closing just like a bank would be.

If she says no to any of that, just ask her what her concerns are, there are usually ways to satisfy them. Just an aside, I'd never spend rehab type money on a house I didnt own, so I dont know that optioning it is a good option as mentioned previously. Certainly can structure it that way, but you are over exposed in my book.

As far as presenting to her, you need to keep it as simple as possible and try to anticipate and satisfy her objections. They will be risk of loss, time until being paid, your ability to perform, what happens if you screw up the repairs, etc. I had to buy a life insurance policy once to get a private lender over the hump, but they rarely think that far ahead.

Also, you can send her something in writing, but you really need to hammer the details out in person. The "I'll send you something" is a cop out because you weren't in familiar territory. OK to do as you learn of course, but just know they'll almost never bite on anything creative if you send it in writing without any follow up and the more time they have to ask their best friend, brother in law, or dog, the less chance you have of getting your terms.