Help when you find a deal, but have never done seller financing

[Matthew White]

Hello all! My partner and I are relatively new to the BiggerPockets community into real estate investing as a whole. We started out by investing out of state and have two long-term rentals currently. We took the next step by buying a primary residence with 5% down in a high appreciating market of the San Francisco Bay area, where it is very expensive and not easy to put 20 to 25% down on investment properties that cost north of $500,000. Our plan was to keep investing out of state where we can easily afford required down payments while purchasing a primary residence with 5% after living in each home at least one year. Well, as you know, life sometimes throws you curveballs. Another unit in the same building we purchased our primary residence has been sitting on the market for 90 days. We really believe in the area and especially believe in the potential for using as medium term rental because of its location. We want to approach the sellers about seller financing but we aren’t sure how to do this. We have never done a deal like that in the past and did not think something great would pop up on the market again. We know there’s a way to do this but we need direction! Thank you!

[Darius Ogloza]

At the outset, it is important to gather a much information about the seller as possible.  Does this involve the sale of a personal residence or of an investment property?  Is the seller likely to incur substantial tax on the sale (e.g., is not eligible for the $250,000 tax exemption for sale of a personal residence for one reason or another)?  Is there another reason why seller could benefit from a series of regular payments (i.e. annuity-like stream) rather than from a lump sum payment?  For instance, does the seller need the funds to purchase another home or does the seller has somewhere to go already post sale? 

Other factors: Is the interest rate you are willing to pay competitive with what the seller could earn from other sources?  Can you offer any additional security for your performance on the note other than the subject property?  How flexible can you be on repayment schedule? Etc.