Seller financing with pm/hm for downpayment?

[Justin B.]

Does anyone buy seller-financed multifamily properties with private or hard money down?

I dont want to blow my wad(150k+), in fact prefer to use opm if I can to purchase as many rentals as possible. How would a deal like that look as far as terms, rates etc?

Any resources on this, not looking for a guru training program, just;

How to structure such a deal so everything cash flows properly.

Also whats a respectable per door profit? Is it possible to cashflow a property supporting the dp and the sellers note and still have profit for yourself?

Whats an appropriate interest rate for hm or pm?

How bout down payment amount?

Or length of loan, or market value?

I am finding a ton of duplexes 17-50k that rent for 550-650 a month...

Thank you BP

[Bill Gulley]

@Justin B. Consider a few things:

A $17K property will be a dump anywhere in this country, poor condition, poor location, there is a reason someone is willing to pawn off a property that by its capitalization should come in 4 times higher. There is the issue of rents and financials being manipulated, vacancy not being true or other misleading claims, but we'll skip that side.

I don't know Lakewood, but I'd first protect my money by knowing my market, the local regulatory issues and code requirements.

If you are going to invest as a slumlord, find out how life is with slumlords in your area. My area is about as pro business as any area can get, yet life can be and is made difficult for landlords with poorly maintained properties or low end properties. Search "slumlord" here and see what pops up.

A good RE business is not just about cash flow, it also includes sound investments that protect your investment, allows appreciation and tax advantages. There are also community responsibility aspects that ensure you're allowed to stay in business.

Next, understand too that RE, especially the internet, is full of promoters having motives to profit from mentoring, coaching, selling books, programs or other materials that are hyped in marketing products or services. I recall a saying I heard "if it's in the newspaper it has to be true". That was a long time ago when I heard that, still that thinking holds true today with the internet. If you subscribe to that thinking, you'll be in trouble.

I suggest you get outside and look at properties in person. The computer is a great tool, it doesn't replace seeing to learn. When I'd go into a neighborhood I wasn't real familiar with (usually out of town types) I'd drive through and stop and think of some reason to strike up a conversation with some guy washing his car or sitting on some porch. RE is a social business. Homes are not such commodities like cars or picnic tables, the reason property has value arises from it's utility, functions, and in residential that equates to serving a social function as a home. Start by understanding the people to understand the market and the demands as well as the socio-economic group of your market.

Non-owner occupied conventional loans will be at 75-70% LTV. First 4 at 75% thereafter you may be looking at 70% depending on the type loan you are looking at.

Closing costs vary but add about 2% more to get in a property. You also need reserves in landlording. That can come from cash as well as the ability to obtain emergency funds. There are threads on this area. Let's just assume 1K or 2% of a sale price.

You have $150K available. Ballpark it. At 30% down and expenses with the padding, that leverages $500,000 in RE. If the 2% rule holds true in your area your gross should be around 10,000, at 50% that's $5k your way, another way to look at it is buying with a 10% cap rate, 50,000 in rents/2=25,000/12=2083 or 2K monthly NIBT.

A 60K property may get you 3% appreciation in a decent area in decent shape. you can buy 8. or 1800 increase in NW or 14,400. Appreciation can be $150 per door in a good market.

17K properties you can buy 8, because you're price is too low for financing, it may be to low or undesirable even if a HML or private lender would dare go there. 500 in rents is 4K. Question now is how much for maintenance, repairs, required improvements, such could take half, 2,000 a year per property, if so, you're back to the same rents Properties at the bottom usually don't appreciate except as to rents, so there really isn't anything to even closely count on or consider.

Now, consider the hassle factor, class of tenants, dealing with local officials, ordinances, even reputation. I'd say you need to consider nicer properties.

I did start this at 3 AM, only one coffee, so check my work, but I did use my calculator, LOL. :) .

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