I should have payed more attention to Ben Leybovich's blog posts

Innovative Strategies
11yFollow

I should have payed more attention to Ben Leybovich's blog posts

DJ Cummins
Rental Property Investor · Bethalto, IL · Member since 2014 · 319 posts · 103 votes

I have to be honest; I haven’t really read many forum posts about no/low money down / creative financing/ OPM. We just bought our first multi-family property with a conventional mortgage, 20% down. So right now our available cash is not enough to go out and buy another property for a while. Let's say that I have a relationship with someone who is retiring and getting ready to travel. They have already sold their business, and now they have five rentals that they are looking to sell. I feel like there is at least a slight chance that this couple would consider an owner financing deal on all of them together. I don't know any numbers on the properties; I don’t even know their actual addresses. I would guess they are each worth between 50-75k here in the Midwest, and probably rent for 550-750 per month.

So my question is not exactly specific, but I am interested to see some opinions. How should I bring up this possibility to the property owners? They have them all for sale by owner right now. Does anyone have any selling points I can use? Would they have to pay capital gains if they sold the properties this way? I am just looking for a way to sell the idea, not give an actual offer just yet.

IF...they like it, how do you then structure a deal like this?

0Reply
14 views

Most Popular Reply

Joshua Feit
Atlanta, GA · Member since 2014 · 240 posts · 130 votes
11y

Hi DJ! Josh here, a newer buy/hold investor from Atlanta. I have exactly one experience with private financing, and I just set it up a month ago. All this to say, you should weigh my advice carefully.

Perchance, are the current owners related to you? Your folks? Just a guess... If the rents are really about 1% of the purchase price, then it may be difficult to take a private loan on the full amount and still generate monthly cash.

At any rate, I'd recommend the following approach:

1) Find the addresses and learn as much as you can about the properties (actual value, comps, rental amounts, etc.)

2) Put together the numbers on the properties, and work backwards to figure out a package purchase price that makes the deal work for you.

3) Armed with this information, approach the owners to see if they would be interested in selling. Figure that anyone close to retirement is probably making conservative percentages on their investment accounts -- perhaps 4-5%. If you can make the numbers work, propose a fixed-rate note with a rate of about 6-7%. You want the percentage to be appealing compared to the current portfolio of investments, yet low enough that the numbers will still work for you.

4) If they are interested, I highly recommend using any of a number of companies that will set up and manage the loan for you. For a minimal management fee, these companies will bill you for the payments, just like any company would, handle the accounting, and auto-deposit the funds into the seller's accounts. This extra layer between the seller and buyer helps everyone to feel that the loan is legitimate and easy to manage.

I wish you all the best with your ventures. Cheers!

1Reply
See this reply in the discussion

4 Replies

Jump to latestLatest
  • Joshua Feit
    Atlanta, GA · Member since 2014 · 240 posts · 130 votes
    11y

    Hi DJ! Josh here, a newer buy/hold investor from Atlanta. I have exactly one experience with private financing, and I just set it up a month ago. All this to say, you should weigh my advice carefully.

    Perchance, are the current owners related to you? Your folks? Just a guess... If the rents are really about 1% of the purchase price, then it may be difficult to take a private loan on the full amount and still generate monthly cash.

    At any rate, I'd recommend the following approach:

    1) Find the addresses and learn as much as you can about the properties (actual value, comps, rental amounts, etc.)

    2) Put together the numbers on the properties, and work backwards to figure out a package purchase price that makes the deal work for you.

    3) Armed with this information, approach the owners to see if they would be interested in selling. Figure that anyone close to retirement is probably making conservative percentages on their investment accounts -- perhaps 4-5%. If you can make the numbers work, propose a fixed-rate note with a rate of about 6-7%. You want the percentage to be appealing compared to the current portfolio of investments, yet low enough that the numbers will still work for you.

    4) If they are interested, I highly recommend using any of a number of companies that will set up and manage the loan for you. For a minimal management fee, these companies will bill you for the payments, just like any company would, handle the accounting, and auto-deposit the funds into the seller's accounts. This extra layer between the seller and buyer helps everyone to feel that the loan is legitimate and easy to manage.

    I wish you all the best with your ventures. Cheers!

    1Reply
  • Troy Fisher
    Specialist · Kirkland, WA · Member since 2013 · 1k+ posts · 817 votes
    11y

    Yah you should because Ben will take you out back and talk very aggressively at you for purchasing a 50-70k single family in the Midwest.

    0Reply
  • DJ Cummins
    OP
    Rental Property Investor · Bethalto, IL · Member since 2014 · 319 posts · 103 votes
    11y

    @Joshua Feit no relation :)

    @Troy Fisher I know he doesn't like "pigs" but I'm from farm country :)

    0Reply
  • Ronald PerichPro Member
    Investor · Granite City, IL · Member since 2014 · 658 posts · 301 votes
    11y

    @DJ CumminsIf you know who the owner is, there may be a chance they haven't used a land trust or LLC to "hide" their identity on the county treasurer's site. In Madison county, we can search by name for property owners. While it won't have anything about liens or encumbrances on the site, it does show last sold date. That would at least give you an idea if they have a lot of equity.

    That would at least give you an idea of where the properties are and you can get an idea if it's somewhere you'd like to invest.

    If you think that it's worth asking the question, then why not ask the question? See if they are willing to do a seller carry-back or would otherwise be interested in owner financing? Let them know about your situation.

    Brandon Turner had that experience with someone at his church I believe. It took something like three years before he actually purchased the property. I think it started with a master lease at first and seller financing later. A master lease might be a great strategy for this situation. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free