Letter to seller - Owner Financing: Please Review!

[Kyle McCorkel]

I've been pursuing a potential owner financed package deal for three properties, 6 units total.  The seller is working through an agent.  From what I know so far, the seller either owns the properties free and clear or has a very low mortgage balance.  Seems like a great opportunity for seller financing to me.

Anyways, the selling agent asked me to "write something up" so that she can present it to the seller.  I am not ready to make an offer yet...but mainly want to gauge the seller's interest in doing owner financing.

BP - can you please review my writeup below and let me know what you think? Any advice on how I can be as transparent, honest, and non-threatening as possible would be greatly appreciated.

_____________________________________

Dear Seller,

My name is Kyle McCorkel and I’m a real estate investor. My wife and I live in Hummelstown. I’m interested in your rental properties in ______, and I wanted to begin the conversation about how we might be able to come to an agreement allowing me to purchase the properties. As an investor, I must find great deals with great financing in order for them to be worthwhile for me. Since you are trying to sell multiple properties, I’d like to gauge your interest in selling them as a package deal with owner financing.

In case you are not aware of how owner financing works: this is a situation in which the seller of the property “carries the mortgage” for the buyer. The seller and buyer can negotiate on all terms of the loan, such as down payment, interest rate, and amortization schedule. After the property is purchased, the buyer pays the seller in monthly mortgage payments, just like you would pay a bank in a conventional financing situation.

The benefits of owner financing for the buyer are that you can have more control over the terms of the loan. This can allow the buyer to turn a good deal into a great deal. The benefits for the seller include being able to spread out the tax burden of the sale and to gain a passive stream of income every month.

I encourage you to seek council with your attorney and/or tax accountant in order to fully understand how owner financing would affect your specific situation, and if it is right for you. It will also be important that you become comfortable with me as a borrower. I encourage you to perform credit checks on both myself and my wife. You will find that we both score very high, around 800. We are responsible with our finances and take our debts very seriously, and we usually choose to setup automatic payments to ensure we never miss a payment.

I’ve put together a demonstration on the next pages of some example terms and example payment schedule. To be absolutely clear, this is not an offer. The terms are not my offer terms, and the purchase price is not an offer price. This is just to demonstrate what an owner financed deal might look like.

Please let my agent know if you would be interested in selling all three of your properties in an owner financed deal. If that is the case, then I would like to conduct some due diligence on the properties before presenting an offer. This due diligence would include an initial walkthrough of each property (I’ve only seen _________ so far) as well as verification of all income and expenses.

Please take all the time and precautions necessary to fully consider my proposition. I look forward to hearing back from you.

Sincerely,

Kyle McCorkel

Example of owner financed deal: For Demonstration Purposes Only – this is not an offer

Purchase Price: $100,000

Down Payment: $5,000

Loan Amount: $95,000

Annual Interest Rate: 4%

Amortization Period: 360 months

Number of Payments: 120 (balloon payment after 10 years)

Monthly Payment	$ 453.54
Balloon Payment	$ 75,299.00
Total Payments	$ 129,270.26
Total Interest Paid	$ 34,270.26

(amortization schedule follows)

[Karen Margrave]

When an agent says to "write something up" they want an offer.  If you present the agent with an offer that includes owner financing, it is up to the agent to explain the scenario and how it works to the seller. Every state has their laws regarding owner financing, licensing for mortgage brokers, attorneys, etc. and it's important not to delve into that territory if you are unlicensed. I'd say if you're interested in the property, make an offer with the terms you want and see what they come back with. 

[Mike Wood]

@Kyle McCorkelWhile I understand that you dont want to make an offer, I dont think you have given the seller anything to consider other than the concept.  

From the sellers perspective, there is nothing here other than some fishing on your part.  Also, most sellers want an incentive for anything thing but cash.  If I were selling and not desperate to sell, I would ignore this letter.  

If you are serious, indicate such with some concrete terms that you are willing to offer, like down payment, interest rate, amortization, etc.  Even if you dont offer a price at this point, it gives the seller some idea to consider. 

Sorry to be so negative, but I just dont see how your letter will get you anywhere.  You already know that the owner is interested in selling (as they have it with an agent), so its all about what you are willing to offer them.

[Kurt Brumfield]

One thing to consider is your down payment would hardly cover the agent's commission. It's typical to see 6% commission. Therefore 100,000 sales price would generate $6000 commission to the agent. A $5000 down payment would mean that the agent either renegotiate their fee or the owner would have to come out of pocket.

Please tell us how it goes on this deal. Best of luck.

[Kyle McCorkel]

@Kurt Brumfield@Mike Wood@Karen Margravethanks for the feedback guys.  You're right, I need to grow a pair and just submit an offer.  I am going to work on revising this letter to pack a little more punch and will post it probably sometime tomorrow.

[Sarah Ziehr]

Whats in it for them? I don't see anything that would entice this seller. 

Like Karen states, the agent means make an offer when she says "write something up". They are looking for a starting point. 

I agree with Mike that I would ignore this letter if I were the seller. 

[David Nolan]

@Kyle McCorkelSimply make an offer on the terms as you want them subject to your due diligence. If they accept you still have an exit from the deal through your due diligence period. Don't over complicate it. Keep it simple. If they accept your offer or ask for more details then feel free to explain your plan.

Seller's simply want to sell their property so make your offer as appealing as possible without all the hoopla.

[Jace Perry]

What was the result of this deal? Did you end up re-writing your letter?

[Kyle McCorkel]

@Jace Perry

The result was I lost the deal because I took too long to make an offer. Some one else came along and picked up the package deal! Lesson learned was to be decisive and just make an offer - there is plenty of time to work out the details after the initial offer!

[Grace B.]

Interesting read above. I have an opposite situation.  My family has a group home property (one floor  6 bd 4 bath)  leased to a pair group home operators. who are two best friends got together to run a group home. One is a nurse.  Now in the fourth months, they have already 3 patients residendants and financially they are probably breaking even now. The rent is $2500 + N. They  maintain the interior and lawn. Landlord structure. The housing price has gone up in recent years in the area for about 30% and we are thinking about selling it on the market to investors (8.8% cap)or to the tenant/operator and carry a note. There is no agent involved. we have done a couple of owner financing in the past and carried  notes.  My question is how to present the finance terms to the operator. i mentioned verbally about the possibility of the family is considering selling now and also be willing to do owner financing. They were interested.  Should I just send them in email the terms of what our family wants for example, $279,900, 8% interest rate, 30 yr amort, 5 yr balloon at 10% down? And add an amortization table showing interest and equity table  ? Do I want to provide a COMP of the neighboring similar properties? or do I let them do their market research any way? Do I want to give them 2 weeks or one month to make decision before I put it on the market? I am not sure if they can come up with 10% down pay right a way especially they may need reserve money to install fire alarm equipment and fixture in the property for patients safety and code compliance instead.  How do I handle to resistance of 10% down or if they bark at  8% interest rate? Do I want to accept lower than 10% down?  since they have average credit scores.  But they are hard working determined business women and they pay rent on time.   I am not in a hurry or need money  just that I see right now it is a good summer season to sell.  Can you give me advice on how to sell/negotiate/present this property to my tenant/group home operator or Investors on the market? -Grace B.  Dallas, TX