Take 2: Letter to seller for Owner Financing

[Kyle McCorkel]

Figured I'd start a new thread since this letter is long.  Here's the scoop:

Elderly lady, husband passed away, has three properties (duplexes, separate deeds, but two are left/right of a 4-plex, and another is a block away) listed on MLS through an agent. Have been listed about 6 months and they keep dropping the price. They are each listed for around $100K now, so $300K total.

Units are currently all rented.

I went and looked at a few units, and it looks solid.  Definitely some opportunities for rehab (older properties) but for the most part they are in decent shape.  At the right price they would cash flow nicely and then I could invest some time/money into separating utilities to make them even more profitable.

I just closed on a HELOC for up to $31K at 4.34%. I want to offer for owner financing and use the HELOC to fund the down payment (so no money down). At the offer price and terms, I will cash flow around $100/door.

Seller's agent asked me to "write something up" - can you look at the letter, and offer terms below, and let me know what you think? Am I leaving out anything important?

__________________________________________________

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 would like to make an offer to purchase your properties as a package deal with owner financing.

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 my offer price and terms on the following pages, along with an amortization schedule. This offer will be contingent on a physical inspection of each property, as well as verification of all income and expenses.

I look forward to hearing back from you.

Sincerely,

Kyle McCorkel

Offer Price and Terms:

Purchase Price: $225,000

Down Payment (10%): $22,500

Loan Amount: $202,500

Annual Interest Rate (fixed): 4.5%

Amortization Period: 360 months

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

Monthly Payment	$ 1,026.04
Balloon Payment	$ 163,206.86
Total Payments	$ 285,305.62
Total Interest Paid	$ 82,805.62

Amortization Schedule	{42}
Month	Date	Payment	Interest	Principal	Balance
	3/1/2016	-	-	-	$ 202,500.00
1	4/1/2016	1,026.04	759.38	266.66	202,233.34
2	5/1/2016	1,026.04	758.38	267.66	201,965.68
3	6/1/2016	1,026.04	757.37	268.67	201,697.01
4	7/1/2016	1,026.04	756.36	269.68	201,427.33
5	8/1/2016	1,026.04	755.35	270.69	201,156.64
6	9/1/2016	1,026.04	754.34	271.70	200,884.94
7	10/1/2016	1,026.04	753.32	272.72	200,612.22
8	11/1/2016	1,026.04	752.30	273.74	200,338.48
9	12/1/2016	1,026.04	751.27	274.77	200,063.71
10	1/1/2017	1,026.04	750.24	275.80	199,787.91
11	2/1/2017	1,026.04	749.20	276.84	199,511.07
12	3/1/2017	1,026.04	748.17	277.87	199,233.20
13	4/1/2017	1,026.04	747.12	278.92	198,954.28
14	5/1/2017	1,026.04	746.08	279.96	198,674.32
15	6/1/2017	1,026.04	745.03	281.01	198,393.31
16	7/1/2017	1,026.04	743.97	282.07	198,111.24
17	8/1/2017	1,026.04	742.92	283.12	197,828.12
18	9/1/2017	1,026.04	741.86	284.18	197,543.94
19	10/1/2017	1,026.04	740.79	285.25	197,258.69
20	11/1/2017	1,026.04	739.72	286.32	196,972.37
21	12/1/2017	1,026.04	738.65	287.39	196,684.98
22	1/1/2018	1,026.04	737.57	288.47	196,396.51
23	2/1/2018	1,026.04	736.49	289.55	196,106.96
24	3/1/2018	1,026.04	735.40	290.64	195,816.32
25	4/1/2018	1,026.04	734.31	291.73	195,524.59
26	5/1/2018	1,026.04	733.22	292.82	195,231.77
27	6/1/2018	1,026.04	732.12	293.92	194,937.85
28	7/1/2018	1,026.04	731.02	295.02	194,642.83
29	8/1/2018	1,026.04	729.91	296.13	194,346.70
30	9/1/2018	1,026.04	728.80	297.24	194,049.46
31	10/1/2018	1,026.04	727.69	298.35	193,751.11
32	11/1/2018	1,026.04	726.57	299.47	193,451.64
33	12/1/2018	1,026.04	725.44	300.60	193,151.04
34	1/1/2019	1,026.04	724.32	301.72	192,849.32
35	2/1/2019	1,026.04	723.18	302.86	192,546.46
36	3/1/2019	1,026.04	722.05	303.99	192,242.47
37	4/1/2019	1,026.04	720.91	305.13	191,937.34
38	5/1/2019	1,026.04	719.77	306.27	191,631.07
39	6/1/2019	1,026.04	718.62	307.42	191,323.65
40	7/1/2019	1,026.04	717.46	308.58	191,015.07
41	8/1/2019	1,026.04	716.31	309.73	190,705.34
42	9/1/2019	1,026.04	715.15	310.89	190,394.45
43	10/1/2019	1,026.04	713.98	312.06	190,082.39
44	11/1/2019	1,026.04	712.81	313.23	189,769.16
45	12/1/2019	1,026.04	711.63	314.41	189,454.75
46	1/1/2020	1,026.04	710.46	315.58	189,139.17
47	2/1/2020	1,026.04	709.27	316.77	188,822.40
48	3/1/2020	1,026.04	708.08	317.96	188,504.44
49	4/1/2020	1,026.04	706.89	319.15	188,185.29
50	5/1/2020	1,026.04	705.69	320.35	187,864.94
51	6/1/2020	1,026.04	704.49	321.55	187,543.39
52	7/1/2020	1,026.04	703.29	322.75	187,220.64
53	8/1/2020	1,026.04	702.08	323.96	186,896.68
54	9/1/2020	1,026.04	700.86	325.18	186,571.50
55	10/1/2020	1,026.04	699.64	326.40	186,245.10
56	11/1/2020	1,026.04	698.42	327.62	185,917.48
57	12/1/2020	1,026.04	697.19	328.85	185,588.63
58	1/1/2021	1,026.04	695.96	330.08	185,258.55
59	2/1/2021	1,026.04	694.72	331.32	184,927.23
60	3/1/2021	1,026.04	693.48	332.56	184,594.67
61	4/1/2021	1,026.04	692.23	333.81	184,260.86
62	5/1/2021	1,026.04	690.98	335.06	183,925.80
63	6/1/2021	1,026.04	689.72	336.32	183,589.48
64	7/1/2021	1,026.04	688.46	337.58	183,251.90
65	8/1/2021	1,026.04	687.19	338.85	182,913.05
66	9/1/2021	1,026.04	685.92	340.12	182,572.93
67	10/1/2021	1,026.04	684.65	341.39	182,231.54
68	11/1/2021	1,026.04	683.37	342.67	181,888.87
69	12/1/2021	1,026.04	682.08	343.96	181,544.91
70	1/1/2022	1,026.04	680.79	345.25	181,199.66
71	2/1/2022	1,026.04	679.50	346.54	180,853.12
72	3/1/2022	1,026.04	678.20	347.84	180,505.28
73	4/1/2022	1,026.04	676.89	349.15	180,156.13
74	5/1/2022	1,026.04	675.59	350.45	179,805.68
75	6/1/2022	1,026.04	674.27	351.77	179,453.91
76	7/1/2022	1,026.04	672.95	353.09	179,100.82
77	8/1/2022	1,026.04	671.63	354.41	178,746.41
78	9/1/2022	1,026.04	670.30	355.74	178,390.67
79	10/1/2022	1,026.04	668.97	357.07	178,033.60
80	11/1/2022	1,026.04	667.63	358.41	177,675.19
81	12/1/2022	1,026.04	666.28	359.76	177,315.43
82	1/1/2023	1,026.04	664.93	361.11	176,954.32
83	2/1/2023	1,026.04	663.58	362.46	176,591.86
84	3/1/2023	1,026.04	662.22	363.82	176,228.04
85	4/1/2023	1,026.04	660.86	365.18	175,862.86
86	5/1/2023	1,026.04	659.49	366.55	175,496.31
87	6/1/2023	1,026.04	658.11	367.93	175,128.38
88	7/1/2023	1,026.04	656.73	369.31	174,759.07
89	8/1/2023	1,026.04	655.35	370.69	174,388.38
90	9/1/2023	1,026.04	653.96	372.08	174,016.30
91	10/1/2023	1,026.04	652.56	373.48	173,642.82
92	11/1/2023	1,026.04	651.16	374.88	173,267.94
93	12/1/2023	1,026.04	649.75	376.29	172,891.65
94	1/1/2024	1,026.04	648.34	377.70	172,513.95
95	2/1/2024	1,026.04	646.93	379.11	172,134.84
96	3/1/2024	1,026.04	645.51	380.53	171,754.31
97	4/1/2024	1,026.04	644.08	381.96	171,372.35
98	5/1/2024	1,026.04	642.65	383.39	170,988.96
99	6/1/2024	1,026.04	641.21	384.83	170,604.13
100	7/1/2024	1,026.04	639.77	386.27	170,217.86
101	8/1/2024	1,026.04	638.32	387.72	169,830.14
102	9/1/2024	1,026.04	636.86	389.18	169,440.96
103	10/1/2024	1,026.04	635.40	390.64	169,050.32
104	11/1/2024	1,026.04	633.94	392.10	168,658.22
105	12/1/2024	1,026.04	632.47	393.57	168,264.65
106	1/1/2025	1,026.04	630.99	395.05	167,869.60
107	2/1/2025	1,026.04	629.51	396.53	167,473.07
108	3/1/2025	1,026.04	628.02	398.02	167,075.05
109	4/1/2025	1,026.04	626.53	399.51	166,675.54
110	5/1/2025	1,026.04	625.03	401.01	166,274.53
111	6/1/2025	1,026.04	623.53	402.51	165,872.02
112	7/1/2025	1,026.04	622.02	404.02	165,468.00
113	8/1/2025	1,026.04	620.51	405.53	165,062.47
114	9/1/2025	1,026.04	618.98	407.06	164,655.41
115	10/1/2025	1,026.04	617.46	408.58	164,246.83
116	11/1/2025	1,026.04	615.93	410.11	163,836.72
117	12/1/2025	1,026.04	614.39	411.65	163,425.07
118	1/1/2026	1,026.04	612.84	413.20	163,011.87
119	2/1/2026	1,026.04	611.29	414.75	162,597.12
120	3/1/2026	163,206.86	609.74	162,597.12	0.00

[Account Closed]

Hi Kyle,

You've obviously worked very hard on this proposal, but if I were you, I would start with something really simple, like "my wife and I love your properties and are willing to pay full asking price, if you would consider financing them for us.  We have great credit scores and are willing to put down a downpayment."  I just think you may overwhelm her with too much info.  Get a yes to the idea of it first.  Good luck!!!

Kim

[Steve Vaughan]

I usually draft a letter of intent (LOI). It can be personal, explaining a few things you like about the properties and a few things you don't. "Many kudos for running rentals for so long. Must have been a lot of work. Be nice to have the cash-flow without the headaches I bet!"

I'd continue something along the lines of... I can close quickly and allow you to earn interest instead of the bank.  Secured by collateral I plan on improving.  You'll have the 1st mortgage and I'll have you all cashed before you know it.  Would 10% be enough down to show you I am serious?  I have experience doing this and can provide references.    Just give the ok and I'll submit a formal purchase and sale agreement to your agent.

I agree you should recommend someone consult an attorney and show the numbers, but not as the main body of your letter.  I would do a softer approach to see if they will entertain the idea.  You can submit the amort schedule if asked.  Good luck @Kyle McCorkel!

[Kyle McCorkel]

@Steve Vaughanthanks for the recommendations; I like some of your verbiage and I'll try to include it in the letter.

@Account Closedyes I have put some time into this :) This is my first offer for owner financing.  Am I over thinking it? Most definitely.

The one thing is, I definitely can't pay full price and get good cash flow. My offer is about 70% of ARV. The comps for the area are around $110,000, and I am offering $75K per property, plus asking for owner financing. The list price averages $100K per property.

[Account Closed]

gotcha, so substitute your price with "full price."  Actually, the realtor should be able to tell you if she'll finance it.  All of the rest - creating the note and amortization schedule - will be done by attorney.

[Bill Gulley]

Well, you dd a good job, but when the Realtor said "write it up" they don't mean a letter with note terms and an amortization, they mean write up an offer on a contract and specify the financing, sale price, down payment, amount financed, interest rate and amortization. That's it, that simple. Realtors don't really present letters,  they present offers. And yes, the agent should be able to  say if the seller would entertain seller financing and most likely will taking all properties. Tired landlords love interest income and deferral of gains on the sale so make sure the agent understands the benefits, your down payment needs to  pay commissions and seller's closing costs, if so you'll make the agent happy. 

Since the seller is elderly, ensure you she discuss her transaction requirements with her attorney and accountant. When I tell folks that I also say this is my deal, my offer, if your attorney wants to negotiate further then I'm probably not interested in changing things to justify an attorney's fee. Especially if my offer is full price! However, I'm certainly willing to address any legal matter your attorney may have. :) 

[Brian Gibbons]

Originally posted by @Account Closed:

Hi Kyle,

You've obviously worked very hard on this proposal, but if I were you, I would start with something really simple, like "my wife and I love your properties and are willing to pay full asking price, if you would consider financing them for us.  We have great credit scores and are willing to put down a downpayment."  I just think you may overwhelm her with too much info.  Get a yes to the idea of it first.  Good luck!!!

Kim

 Yes, the elderly do not like "confusion", neither do I! :)

Write this down: 

"A Confused mind says NO!"

Good article here on Seller Financing on www.Nolo.com

http://www.nolo.com/legal-encyclopedia/seller-fina...

You might want to attach something like that.