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

[DJ Cummins]

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?

[Joshua Feit]

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!