All Forum Posts by: Eric Lindsey

Hello there,

When considering an owner-financed deal, the seller's equity position is an important factor in determining if the deal is feasible and mutually beneficial. Generally, the more equity the seller has, the more flexibility and better terms they can offer the buyer.

As a rough guideline, I would look for the seller to have at least 20-30% equity remaining in the property. This indicates they have enough skin in the game to motivate them to offer fair terms.

With 20-30% equity, the seller can likely offer favorable terms.

Conversely, a deal with a seller who has less than 20% equity remaining would be riskier for the buyer. The seller has less motivation to offer good terms, and there is a higher chance of default. I would avoid deals with less than 10-15% equity.

Factors like the property type, market conditions, and seller's financials would also influence the terms. But in general, 20-30% equity provides a good starting point for an owner-financed deal that works for both parties.

For seller-finance an owner should have no debt or little enought debt that the downpayment will pay off the loan. As an owner you can finance what you own. Another option you can explore if they have too much existing debt is assuming the loan. I would avoid buying subject to existing debt at all costs expecially in our current rate market where banks are more likely to call notes due. 

Regarding owner financing in relation to creative real estate financing, an option is to combine private capital and owner financing to secure the highest leverage possible on the purchase of a property. For instance, it is possible to secure a DSCR loan for 60% and have the seller hold an additional 30%, which, would give you the highest possible LTC for any DSCR loan on the market. Any combination of the two is possible and can be advantageous in an attempt to spend minimal capital out of pocket.

Eric,

There are several variables to consider in a multifamily seller financing scenario, but the amount of Seller equity shouldn't necessarily be one of the prime considerations, unless you are taking the property subject to existing mortgage debt. Depending on the type of financing and the specific details of the Loan Agreement, this may not be permitted nor advisable. 

If the Seller will be conveying the property via deed and providing standby or carryback financing, then you may generally disregard their current equity position. Make a deal or don't. 

Aside from the subject-to scenario, the greatest impact that the Seller's equity position will have on your deal is their power to negotiate price and carryback financing. 

If I misunderstood your question, let me know. If you're planning on taking the deal subject-to, you will need to carefully build a fence around the entire deal structure, including PSA, subject-to financing agreement, loan management, proper trust vesting to avoid due on sale triggers with the current lender, etc. 

What is your podcast called and where can we listen?  Also, I might be interested in being an LP or in some way involved with these types of syndications.  Would love to learn more and connect. 

That's a great niche and the money is readily available in the DSCR world.