How Much Higher Would You Pay For Seller Financing?

[Tony Nguyen]

Hey guys,

I recently met a seller who owed nothing on his property. It's a good property, under 10 years old, 3/2 with 1300 sqft, etc etc.

The house has comps from 70k (fixer) to 90k (move in condition). It can rent for $1,200 per month. My goal was to buy and hold. The condition of this house is move in ready.

I was prepared to pay 80k with 10% down and he would finance 90% @ 5% with a 10 year balloon. He was fine w/ holding the note, but wanted 100k as the price. I told him I'd meet him in the middle @ 90k and it was my final offer. He told me he wouldn't go any lower than 100k so I walked.

My question is do you usually pay more for the ease of seller financing or no? I am really just trying to see how valuable seller financing is to you guys - thanks for your input!

[Aaron Mazzrillo]

It isn't about paying more for seller financing. It is about paying more on price in order to get better terms. I certainly don't like your 10 year balloon. I would consider that if I had zero interest, which I do get.

Also, why are you paying 5%? If he got cash and put it in the bank how much would he get? If he got 1% and you paid him 2% to carry paper that is 100% more than he would get in a savings account! 5% is what banks get for loaning money. He isn't loaning you any money at all so why even pay interest?

I have and will pay interest, but I certainly negotiate for not paying until the street lights come on. If I do pay interest, I won't pay more than what banks charge. I did a deal recently and the seller took back $100K at 4% on a $110K purchase price.

If the seller is going to get full price, he should be giving you favorable terms; low monthly payments, low / zero down payment, long pay back period, etc.

The real reason I like seller financing (I prefer to call it seller terms) and don't focus on price/terms up front so much is that the deal isn't done until that note is paid back in full. I like to call in about 12 months and make the offer of some cash for a little discount. I have gotten as much as 50% off a note for making small cash offers. After they do it once, that start thinking of you as an ATM and will call and make offers to you. That is where the real deals are made!