BRRRR: Refinancing Seller Finance Balloon Note

[Darian Richardson]

My Fellow BPERs and BRRRR Connoisseurs,

I need your advice and expertise.

Currently, I am looking into an off-market deal in Lawrenceville, Ga. The property is in need of repair ( roughly $22k in reno), with an ARV of $110K, I am looking to purchase at $70,000. One of the options I am looking to propose to the seller would be seller financing. To make this advantageous to the seller but also equitable on my end, I am thinking of a 2/1 balloon note. The goal would be to refinance after reno, well within the maturity date to payout the seller, and transition to a traditional loan with a lower interest rate.

This would be my first time doing the BRRRR method but also the seller finance option. When it comes to the balloon payment, I have heard more negative than positive about it, so I am a bit conscious about it.

Has anyone ever been in this situation, or has any experience with either seller financing or refinancing a balloon note?

[Rick Pozos]

@Darian Richardson

Lets start with the purchase price. The CASH offer should be somewhere around 70% of ARV minus repairs. For that scenario, you should be offering 110 x .7 = 77k minus repairs of 22 or 55k.

55k cash offer

I always give several offers when dealing with off market properties. Maybe offer 65k with 5k down for the seller to be able to move out and get to a new place. Payments of 600 per month for the 24 months. At the end of the 24 months the balance will be 45.6k which you will refinance or sell the property at the end of 2 years.

65k to 70k offer with some financing

OR offer 88k with 5k down and monthly payments of 700 per month for 10 years. At the end of 10 years the loan will be paid off.

88k full amortization

55k, 65k or 88k Hopefully you and everyone else sees the value in making at least 3 different offers. You can play with the numbers however you want. The cash offer HAS to be very low so that you can pay all of your hard money costs and then you will have to refi and more costs to close.

Give your seller some options.