Closing a lead. Owner financing offer on the table.

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Closing a lead. Owner financing offer on the table.

Nate Williams
Member since 2022 · 51 posts · 28 votes

I found the worst house on the best block in a local historic neighborhood. Lots of old houses valuing over 500k and up to 1M (local house price in my market is 167k). I eventually tracked down the lady who owns it, gave her a call, and we had a friendly conversation about her house and real estate deals of her past. She said that she knows that house is worth 300-400k (and she's right), but she told me to bring her a price that would work for me, and she would be willing to owner finance if we agreed on a price-she has done owner financing for other buys in past years. The house needs about 50k worth of work which I could myself. 100k if I were to sub it out.

My question is, how do I navigate this? I know little about owner financing, and to be honest, if I take on a 300k house payment (or even 250k for that matter), I would struggle to make the payment if I had a prolonged vacancy due to my current W2 income. 

My current options: rent out the current 4 bed 2 bath house that I own and live in so I could move into the 300k house and remodel while I live in it. Or I could buy the 300k house, stay in the house I'm in, get the 300k house remodeled asap and get a renter in asap. I have 35k in the bank currently, so I also could simply be over my head going for a deal this expensive. It is just a once in a lifetime find in a such an expensive neighborhood.

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
1y

@Nate Williams

the terms of seller finance are whatever you agree to with the seller.  so, it could be ( am throwing out random numbers) a purchase price of $350K with $10K down, and then 30-year amortization at 6.5% with a balloon payment due in 5 years.  or whatever you negotiate.  in what I just laid out, you'd make monthly payments to the seller just like you would to a bank for 5 years, and then the remaining principal balance of the loan would be due, at which time presumably you would refinance the house into a commercial mortgage and use the proceeds to pay off the seller.  if you need assistance setting this up talk to some local professionals.

to your point you, should certainly not take on a payment you can't afford - and only you know what that is.  you would need to make monthly payments to the seller during the rehab, just like to any other lender, and then if it were a rental, you would want the rent to cover the payments plus all other expenses.

you'd also need to figure out how to pay for the rehab - either out of pocket, or finance it somehow.  not recommending anything here.  and - if 35K is everything you've got - savings, emergency fund, money for real estate... that is not a huge cushion.  but, we only know what you posted.

hope this helps

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  • Dominic M.
    Property Manager · Northern Virginia & DC · Member since 2020 · 157 posts · 69 votes
    1y
    Quote from @Nate Williams:

    I found the worst house on the best block in a local historic neighborhood. Lots of old houses valuing over 500k and up to 1M (local house price in my market is 167k). I eventually tracked down the lady who owns it, gave her a call, and we had a friendly conversation about her house and real estate deals of her past. She said that she knows that house is worth 300-400k (and she's right), but she told me to bring her a price that would work for me, and she would be willing to owner finance if we agreed on a price-she has done owner financing for other buys in past years. The house needs about 50k worth of work which I could myself. 100k if I were to sub it out.

    My question is, how do I navigate this? I know little about owner financing, and to be honest, if I take on a 300k house payment (or even 250k for that matter), I would struggle to make the payment if I had a prolonged vacancy due to my current W2 income. 

    My current options: rent out the current 4 bed 2 bath house that I own and live in so I could move into the 300k house and remodel while I live in it. Or I could buy the 300k house, stay in the house I'm in, get the 300k house remodeled asap and get a renter in asap. I have 35k in the bank currently, so I also could simply be over my head going for a deal this expensive. It is just a once in a lifetime find in a such an expensive neighborhood.


     Hi Nate, it sounds like a great opportunity! Considering your current W2 income, it's important to evaluate the risks. Renting out your current home could provide steady income, helping offset the new property's costs. You should consult with local property managers and find what the average DOM would be to lease your home and rental rates etc. this would be a good starting point. 

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    1y

    @Nate Williams

    the terms of seller finance are whatever you agree to with the seller.  so, it could be ( am throwing out random numbers) a purchase price of $350K with $10K down, and then 30-year amortization at 6.5% with a balloon payment due in 5 years.  or whatever you negotiate.  in what I just laid out, you'd make monthly payments to the seller just like you would to a bank for 5 years, and then the remaining principal balance of the loan would be due, at which time presumably you would refinance the house into a commercial mortgage and use the proceeds to pay off the seller.  if you need assistance setting this up talk to some local professionals.

    to your point you, should certainly not take on a payment you can't afford - and only you know what that is.  you would need to make monthly payments to the seller during the rehab, just like to any other lender, and then if it were a rental, you would want the rent to cover the payments plus all other expenses.

    you'd also need to figure out how to pay for the rehab - either out of pocket, or finance it somehow.  not recommending anything here.  and - if 35K is everything you've got - savings, emergency fund, money for real estate... that is not a huge cushion.  but, we only know what you posted.

    hope this helps

    1Reply
  • Mark Towey
    Real Estate Agent · Wichita, KS · Member since 2023 · 34 posts · 11 votes
    1y
    Quote from @Nicholas L.:

    @Nate Williams

    the terms of seller finance are whatever you agree to with the seller.  so, it could be ( am throwing out random numbers) a purchase price of $350K with $10K down, and then 30-year amortization at 6.5% with a balloon payment due in 5 years.  or whatever you negotiate.  in what I just laid out, you'd make monthly payments to the seller just like you would to a bank for 5 years, and then the remaining principal balance of the loan would be due, at which time presumably you would refinance the house into a commercial mortgage and use the proceeds to pay off the seller.  if you need assistance setting this up talk to some local professionals.

    to your point you, should certainly not take on a payment you can't afford - and only you know what that is.  you would need to make monthly payments to the seller during the rehab, just like to any other lender, and then if it were a rental, you would want the rent to cover the payments plus all other expenses.

    you'd also need to figure out how to pay for the rehab - either out of pocket, or finance it somehow.  not recommending anything here.  and - if 35K is everything you've got - savings, emergency fund, money for real estate... that is not a huge cushion.  but, we only know what you posted.

    hope this helps


     Hello Nicholas, question on your explanation of a possible seller finance plan for Nate. What would be the point of setting it up like a 30-year amortization schedule at the 6.5% rate if he is going to have to pay it off in full in 5 years anyways with that balloon statement you mentioned? I myself am also trying to learn more about seller financing and you seem to be well educated so just what I wondered about your proposition!

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    1y

    @Mark Towey

    a couple things - from the seller's perspective, it means the seller doesn't have to wait the full 30 years to get the proceeds, and from the buyer's perspective, hopefully in that 5 years appreciation and maybe some updates have increased the value such that when you refinance you don't have to bring any additional cash.  

    if you find a seller that wants to wait longer / spread payments out differently that's fine too.

    1Reply
  • Mark Towey
    Real Estate Agent · Wichita, KS · Member since 2023 · 34 posts · 11 votes
    1y

    I do see how that makes sense from the seller side of things but for the buyer I am confused still. The whole refinance process is not clear to me as I haven't gone through it myself or see it first hand with a client of mine doing it. From what I understand, you have an appraiser go out and give their opinion of what it could sell for but what happens from there? I appreciate your info but I just can't seem to totally wrap my brain around refinancing  @Nicholas L.

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