Advice on Owner Finance Deal Structure with existing ARM Note

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Working with a possible owner finance deal. I'm unsure how to best position the offer given the below scenario. Market rent is between $1800-2200 and home needs light cosmetic upgrades only. Seller is motivated to walk away from self managing.

Desired PP: $224.5k (market value)
Desired DP: 15%

Seller has an 5-6% ARM with a balance of about $90k, unsure if it's assumable (seller to confirm).

How would you approach this deal?

[John Mathew]

Hey there!

Given the scenario you've outlined, here's a suggested approach for the owner finance deal:

1. Determine Assumability: As the first step, confirm with the seller whether the existing ARM is assumable. This can significantly impact your approach and negotiation strategy.

2. Assess Financing Options: If the ARM is assumable, evaluate the terms of the ARM to see if they're favorable. If not, explore whether you have the option to refinance or restructure the financing to align better with your goals.

3. Calculate the Numbers: Since the market rent is estimated between $1800-2200 and the property needs only light cosmetic upgrades, you can use the lower end of the rent range for a conservative estimate. Calculate your monthly cash flow by subtracting expenses (including mortgage payment if assumable, property management, insurance, taxes, repairs, and any other applicable costs) from the expected rent.

4. Craft Your Offer: Given the desired purchase price of $224.5k and the seller's request for a 15% down payment, you could structure your offer as follows:

   - Purchase Price: $224,500
   - Down Payment: 15% ($33,675)
   - Loan Amount: $190,825 (Assuming a $90k loan balance if assumable)
   - Interest Rate: Use prevailing market rates for financing negotiations.
   - Term: Negotiate the length of the loan term, whether it's 15, 20, or 30 years.

5. Negotiation: If the ARM is not assumable or the terms aren't favorable, negotiate with the seller for alternative financing arrangements. This might involve discussing a potential seller financing arrangement where the seller acts as the lender, providing you with a loan directly. Negotiate interest rates, repayment terms, and any contingencies.

6. Present Benefits: When discussing your offer, highlight the benefits for the seller. Explain that they can walk away from self-managing, receive a regular income stream, and potentially defer capital gains taxes through installment sales (consult a tax professional for advice).

7. Flexibility: Be open to negotiation and flexible in your approach. It's important to create a win-win situation where both parties benefit.

Remember, every deal is unique, and the best approach depends on your financial goals, the property's condition, the local market, and the seller's motivations. It's recommended to consult with a real estate attorney and financial advisor to ensure that the deal is legally sound and aligns with your overall investment strategy.

John Mathew