Seller Financing - Structure for Early Payoff Considerations

[Mike Taddy]

Hey everyone.  Obviously a lot of things to discuss related to Seller Financing (SF).  For the sake of this post, my question relates to early payoff considerations.  I'm currently working on a time-phased purchase of a retiring investor's portfolio.  He's open to the idea of SF over the course of several years to help reduce capital gains versus one year.  Also, and most importantly, it will supplement his current monthly passive income.  

Obviously, "everything is negotiable" in seller financing.  My current plan is to not include a "penalty" against early payoff (if I obtain better terms).  With that said, that time-phased passive income is of great value to him.  If he were to ask about my thoughts on "early" payoff penalties, I'd like to be versed in some options.  Initially, I think the "penalty" would be relative to the amount/time left on the note.  The seller does NOT have SF experience so he will be limited in sharing his proposed options.  

If it helps, consider this hypothetical situation.  This is not the actually deal.   

$100K / 20 Year Mortgage
Home price	$100,000.00
Down payment	15.00%
Total amount financed	$85,000.00
Payment amount	$584.70
Total payments	$140,329.80
Interest rate	5.50%
Interest compounding	Monthly
Total finance charge	$55,329.80
Sum Total to Seller	$155,329.80
Seller Net Gain for SF	$55,329.80

So if I wanted to payoff early, what could I present for options if he wants an early payoff penalty? 

Anyone have examples of this situation? 

Best Regards,

Mike

[Ben Leybovich]

Mike,

It's not clear what you're asking, which is probably why you haven't gotten more traction on this. A few thoughts:

Prepayment penalty cam literally be anything you negotiate. There can be a lock-out period during which you cannot prepay. Then there can  be a variety of terms.

Why are you concerned with this? of seller wants cash flow, he won't worry about prepay. On the other hand, if he is concerned about tax ramifications, then the whole package can be structured to accommodate. 

Not sure what more to say. Can you be more specific with your qiestion?