Denver Seller Finance Advice

[Tom Horan]

Hey BP - 

Trying to land my first deal and could use some advice on how to structure a win/win deal for my seller and myself. 

This property has 4 units bringing in $6,000/month currently (all units rented). Depending on the terms, I think the seller is looking to get somewhere in the ballpark of 500k. Seller is an older guy and doesn't want to get killed with capital gains but is also a tired landlord. I'm thinking seller financing would be the best bet to at least spread out the taxes but I could be wrong. I'd like to come up with an attractive deal for both parties and not scare the seller away with a low-ball offer. I have some rapport with the seller and think he'd like to sell to me if the price and terms are right.

I'd be looking to house hack one of the four units and I'm wondering if I could finance some with seller financing, and some with an FHA. I'm clearly not an expert on structuring deals and creative financing - Looking for some help, BP!

[Bill S.]

@Tom Horan my advise is always to ask the seller what terms they would want. Remember they do pay taxes on the interest it's just usually at a lower rate than the capital gains tax rate. You don't have to mention that but seller financing does spread the tax hit out. It is also my understanding the basis of the note steps up when the owner passes and the note goes to their heirs. 

Sellers often don't like the 30 year term because it seems so long for them. When faced with that concern, I offer a 5 or 10 year term based on a 30 year amortization. I always ask them what they would do with the money if they got all cash. If they say put it in the bank then ask if 3-4% would be better than the bank keeping in mind the loan is secured by real estate. That is after all in the neighborhood of the amount you would be paying if you went FHA. The main thing is to ask them what would work and discuss. If they agree to something, get it in writing on the spot and then move forward quickly if at all possible.

Typically FHA doesn't allow seller carry back. The only types of loans where those are done is commercial which is typically done for 5 or more units.

Based on what you have said about the property. I would get it under contract and then worry about how to finance it. There are probably people who would partner with you on a deal like that.