Seller Finance/Skip Realtor Fees in Hot Market?

[Chris Maurice]

Hi all!

I’ve been lurking on the forums for a while now, but this is my first post! Glad to meet you all.

Currently, I’m in an expensive market (Nashville) and am looking for strategic methods for making the numbers work on a rental property. The two strategies that I’m contemplating are: 1) skipping realtor and thus the fees for the seller and 2) seller financing.

Typical Deal analysis (obviously pretty terrible):

Property: 3/2.5 with a backyard in a nice part of town with little renovation needed.

Sell price: $400,000

Historic Rent: $2000/month

Mortgage: $1980/ month (30 year, 5% interest, 10% down)

Expenses: $550/month (estimate including maintenance, ins, 10% vacancy, PMI, and taxes)

Cash flow: approx -$682

Alternative deal analysis

Sell price: $375000 (subtracting 6% realtor fee)

Rent: $2000

Mortgage: $1333 (30 year, 2.5% int with 10% down)

Expenses: $350 (same as above without PMI)

Cash flow: approx $120

This second option is not stunning necessarily, but perhaps there is more room to decrease the sell price and increase the margin.

To me using seller financing benefits the seller as they are now receiving interest payments and get the total sell cost that they want for the house. The questions, then, are how could I present this to a seller effectively to where we both agree that it’s mutually beneficial and is this a reasonable strategy in hot markets where house prices are far outpacing rents (we are obviously no where near the 1% rule)? The biggest prohibition here seems to be gaining the trust to carry the financing and be willing to negotiate an interest rate below market value let’s say such that the rental numbers work.

Thanks for any input!

[Frank Wong]

Hi Chris,

Welcome to BP.  The problem I see with seller finance and skip realtor fees for your scenario is finding the right seller.  You need to spend time and money if you are to find a seller that wants to sell without a realtor and also do seller financing. Very tough to do. 

Sellers usually want more money for their house than its worth.  The realtor is there to put them back to reality. Most sellers want to get all their money and do not want to finance.  Most sellers have loans on their houses so they won't be able to seller financing.

The best bet is to start looking at properties that have been sitting on the market for 60+ days. See if you can go in and negotiate the proper price to make it work. 

I am trying to save you time and give you a scenario that has the highest probability of success.  Could you find a seller and do seller finance? Sure its possible but the probability is very low.