First Seller Financing Deal - To Do Or Not?!!!

Patti Royster · 2014-12-09T09:54:02-08:00

Hi there.My husband and I work in real estate together and have been learning as much as we can about seller financing. We came across this deal and have been considering it but will probably walk away.The property is a legal duplex 3100 square feet and 100 years old. Kitchens and bathrooms would need to be replaced eventually. Galvanized plumbing - may not be as big of a problem since there is only one bathroom per unit. One unit on top with 4 bedrooms/1 bathroom and basement apartment 2 bedrooms/1 bath. Rent upstairs is $950 and basement rent is $700. Owner is 71 years old and is cashing flowing $420/month. Rents are probably about $50-100 low for both units.We explained seller financing to her and offered her $30K after giving her an analysis of what she could realistically walk away with if she sold it with a realtor. She spoke with her 4 kids who thought she was getting taken and now wants $51K for the property. We were going to have the property inspected but not so sure now we really want to invest in a 100 year old property even if it cash flows well. Owner owes $164K with $30K at 11% and the rest at 2.92%!!! Sort of thinking of doing the inspection which will itemize all the things that will need to be updated to show the seller. We know she wants $36K to pay off her mortgage but she will have to pay 25% in taxes on the sale.Would appreciate any experience or thoughts you might have! Thanks in advance.

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Not sure I understand the deal how you are explaining it. If you leave the seller's mortgages in place, it's a sub2 deal. If you give the seller $30K and take over her existing financing, you're paying $194K for the property. Is that what you want to do?

You say she owes $30K with an interest rate of 11%, then you say she needs to $36K to pay off her mortgage. Which mortgage would she be paying off?

What is the property worth?

0 Reply

Wayne Brooks

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

11y

Are you sure the 2.92% isn't a loan mod, which is temporary? A fixed 2.92% rate seems tough to have gotten.

1 Reply

Brian Gibbons

Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes

11y

It would be REALLY helpful if people would be CLEAR when they ask of advice. For me to GUESS is not fun.

Step one: Know what to ask the seller.

Here you go.

Motivated Seller Questions

When talking to a seller, try to ask the questions through the course of a conversation and try not to sound like you are reading from a list.

(Note: You will not ask all of these questions depending on the answers the seller gives and your investing objectives.)

Asking About The Seller And Their Property:

• Can you tell me a little bit about your home? (# of bedrooms, baths, size etc.)

• What do you like most about the home?

• What do you like the least?

• Are there any repairs needed?

• What is your sales price and how did you arrive at it?

• What do you think your house would appraise for in excellent condition?

• What do you think your property could rent for?

• Is your property listed with a real estate agent?

• If you don’t mind me asking, why are you selling?

Asking About The Existing Financing:

• Do you own the house free and clear?

• Do you know if your mortgage loan assumable?

• Would you sell the house for what you owe?

• If not, how much are you looking to get above what you owe? (Subtract that from sales price to

get loan balance.)

• How much are the monthly payment on the mortgage?

• Are the payments current?

What Kind Of Deal Can You Get:

• If I paid you all cash and closed quickly, what is the least you could take?

(Follow-up by asking if that is truly the least they would take.)

• Will you consider leasing the property to me with an option to buy if I guarantee the mortgage

payments and maintenance?

• Do you have a problem with someone living in the property until I get it sold?

• Would you consider optioning the property to me, if there is absolutely no risk or cost to you?

``````````````````````````````

Form on EVERY talk with the seller. Then ask BP with this info. We can help you better.

PROPERTY INFORMATION WORKSHEET

Address __________________________________________ Date _________

Location / Cross Street _______________________________ Map Pg# _____

Seller _______________________ Ph# ____________ Alt. Ph# ___________

Listing Agent _________________ Ph# ____________ Alt. Ph# ___________

CONDITION

__Occupied / __Vacant _____ Bed/_____ Bath Construction _____________

A/C ___________ Elect. Amps ________ Garage _____ Year Built _______

Roof ____________________________________________________________

Exterior __________________________________________________________

Interior __________________________________________________________

Kitchen __________________________________________________________

Baths ___________________________________________________________

Plumbing ________________________________________________________

Appliances _______________________________________________________

Neighborhood ____________________________________________________

Other Work Needed ________________________________________________

________________________________________________________________

FINANCIALS

1st Lien Bal. $_________ 2nd lien Bal. $_________ In Foreclosure: __Yes/__No

Asking Price $_________ My Offer $_________ Resell Approx. $__________

Terms: __ Subject To, __ Agr. For Deed, __ Seller Fin., __ Lease Option, __ All Cash

Additional Notes __________________________________________________

________________________________________________________________

CONTACT RECORD

Name Date Note

_________________________ _____________ ____________________

2 Reply

Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

11y

If you're new to RE, the best money to spend first will be for a professional inspection of a 100 year old residence!

Good points by both above, and how did you arrive at the expected cash flow of a 100 year old home? :)

0 Reply

Morry Eghbal

Real Estate Investor · Rancho Cucamonga, CA · Member since 2014 · 258 posts · 90 votes

11y

Your numbers are not clear, what is the property worth?

0 Reply

Patti Royster

OP

Investor · American Fork, UT · Member since 2014 · 28 posts · 4 votes

11y

Ok I am new to seller financing and I am sorry for not being clear on my question.

She owes a total of around $164K on this property. Based on similar rents in the area we believe the property to be worth $224K but that price is an estimate due to the repairs/investment that will need to be done on the property. We came up with that price doing an analysis of rents in the surrounding area for rental properties.

Her motivation is that she owes $36K on her own personal property and wants to pay off the mortgage for that property and knows she will have to pay 25% in taxes for the proceeds of the sale of her duplex. Does that make sense?

Currently on the duplex she is considering selling she said she owes $164K which $30K of the loan is a second at 11% interest and the remaining loan balance is at 2.92%. Of course I would need to verify both interest rates, mortgages etc. before purchasing the property.

She is 71 years old and doesn't want to hassle with it any longer. Upstairs tenants have been there for 6 years and have a lease in place and she doesn't believe they will be moving any time soon. Basement tenants have a lease in place as well. Easy place to rent. Because the property is so old it will require large investments one day to keep it rentable e.g plumbing, roof, two kitchen completely updated and also two bathrooms. There are only space heaters in the basement. Forced air in upstairs unit.

I would never buy the property without an inspection. Just wondering mostly if you would even consider buying such a property given the age? We would do everything seller financing with an attorney drawing up the paperwork and an escrow company handling the payments each month so she feels comfortable. Also would give her the option to make quarterly inspections to be assured the property isn't trashed and is being managed well. Thinking of doing a balloon payment in 10 years if we did the deal so she wouldn't have her name on a mortgage past the age of 81.

Please be patient with me. I posted this because I wanted help because I don't know all the answers. I don't know anyone who does in the real estate world. I want to learn how to evaluate seller financing deals and that is why I asked. We have been landlords for 24 years so we are not new at this. We are new at analyzing seller financing deals and making them happen. Thanks for your help and sorry I wasn't so clear on the first post.

0 Reply

Brian Gibbons

Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes

11y

Well you're in luck because I'm a seller financing expert, and all you need to do is to hit the link in my signature and I'll give you 30 minutes of my time for free, how's that? :(

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First Seller Financing Deal - To Do Or Not?!!!

First Seller Financing Deal - To Do Or Not?!!!

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