Why I love paying sellers interest instead of the bank!

[Bill Dean]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $169,000
Cash invested: $5,000

Purchased a FSBO using seller finance. I had just become a Realtor and knew I couldn't get a loan for at least 2 years. It was meant to be my house but I needed to rent it out so my income would be higher and more stable when I could refinance it. Having an aggressive note with 90% principal and 10% interest, in 30+ months I've been paying on it, I've never had a vacant month and own 25% of the house. Waiting on the pile up at the banks, title company, and appraisal companies to finally close and take full title. Not bad for putting down 3%...

What made you interested in investing in this type of deal?

I always look for contract for deeds or lease to own opportunities. That way I can use as little money as possible to control a deal. For myself I knew I needed to get out of househacking mode or my girlfriend was gunna hack me out of her life. So, I called lots of FSBO's until I found one 2 blocks away. They owned it outright so I explained my situation and showed them how I would pay them ASKING PLUS INTEREST. In this case they got more for their house than if they had sold it outright!

How did you find this deal and how did you negotiate it?

With lots and lots of calling FSBO's I finally found one what was interested in seller finance and not some ridiculous 35% down high payment BS. They were willing to take more time to get the money back but get asking price plus the interest over the course of 30 months. And they accepted my down payment being what it was $5000 instead of a % of asking.

How did you finance this deal?

I had a line of equity on my first househack duplex with just enough to cover the earnest money and first months rent. As soon as I knew we were golden, I started listing the house for rent. In this case I paid the seller $5000 down and $1000 a month till I could refinance. I just didn't play on the lowest interest rates in history and a pandemic to hit the same month...

How did you add value to the deal?

Having the lawyer, the knowhow, and contract experience helped. The seller was a judge so everything had to be perfect. After bouncing the C4D between our lawyers, we were both satisfied. In this case, I gave the seller full right to the property if I was 45 days late on any payment with no equitable return either. I took all the risk but knew the value of the home.

What was the outcome?

I learned that these deals are possible, and when explained right, more sellers are willing to get paid more and be the bank than you would think. So far I am sitting in tax filing, appraisal, and bank timeout waiting for everything to catch up but in 30 months I went from 3% to 25% ownership. Not bad.

Lessons learned? Challenges?

Lesson learned: FIGURE IN CLOSING COSTS! I went to refinance the property into my name and realized I hadn't budgeted the closing costs in. It wasn't 25% I needed. It was closer to 28% if I didn't want to pay out of pocket. Oops!! So now I have to roll in some closing costs and pay a quarter point more interest. Lesson learned!