All Forum Posts by: Jeff Groudan

Whether or not you need to use an RMLO due to SAFE and Dodd Frank comes down to how many seller financed projects a year you intend to do.   If you don't intend to do more than 3 per year, you are not required to us an RMLO.    You certainly can if you want.     We have found them in the past by going out to some of the local real estate networking facebook sites and posting for an RMLO who can help with a seller financing project.   We've paid between $800 - $1500 for an RMLO to help us.

We've done many projects without an RMLO.   You can vet buyers on your own by asking for paychecks, W2's, credit card statements, etc...   We also use an online tool to do the credit and background checks.   We use SmartMove (a Biggerpockets partner) and it gets you alot of what you need.

this was two years ago so I doubt we could get this rate again:

- 5.5% Interest

- 30yr amortization

- 5yr balloon

If you are only going to do 1-2 a year, max, then SAFE and Dodd Frank don't apply, at least with respect to needing to use an RMLO.   You still have to do basic due diligence that the buyer is capable of keeping up with the payments and not do anything deceptive in terms of the loan terms.   Use a Real Estate Lawyer and/or title company and loan servicing company to ensure things are done correctly based on your state...

We have done a number of Wrap mortgages and we like using seller financing this way a lot.

Banks executing DOS clause for performing notes is EXTREMELY rare in our experience.

As long as their payments come in every month and the home remains insured, it would be really surprising to see the bank call the note.   They would almost be guaranteed to lose money if the owner could not pay...

The two types of sellers who are most open to Seller Financing in our experience are:

- Sellers who are stuck on their sales price.   If you can offer them full asking price but with favorable seller financing terms to you, they might bite.

- Sellers who don't need the cash right away and understand the power of interest and see how much more money they can get by selling with financing vs. selling for cash.

We've generally seen downpayments between $10K-$20K for properties below $300 in value.

The less downpayment you pay, the higher the monthly payments are unless you can negotiate down the interest rate.  However, if I am a seller and I am letting you in for no downpayment, I won't have much flexibility left on terms!

We did buy one property for 0% down - the relevant info on the seller motivation was he had a hard property to sell, it needed a lot of work and not much traffic.  He was also stuck on his sales price

We hooked him by offering him his full asking price but in return, asked for 0% down and showed him how over the term of 5yrs, he made much more by offering financing then he would get by taking just a cash offer.   We gave him a cash offer, but well below asking to "contrast" it with our seller financed offer.

It won't always work but look for properties which have been on the market a long time without reductions - that is often a signal that the seller is stuck on a price...

Agree on most of comments - step 1 is understanding the seller motivation.   In my experience, two of the most common motivations of sellers to accept seller financing offers are:

1)  They are stuck on a sales price and won't budge.   If you utilize seller financing, you can sometimes get the seller on board because they get their sales price and you get favorable loan terms

2)  They don't need the cash right now (retiree, empty nester) and are financially astute enough to see how collecting interest for 5-10 years on their note can be very profitable.

Which argument works completely depends on what the seller needs.   If they specifically need to cash-out to buy another home than seller financing is often DOA.

As mentioned, if the have a balance on their underlying mortage

- If they want to pay it off it might require a big downpayment

- It is possible to leave it in place with a Wrap but that is an advanced strategy and while fairly low risk, the due on sales clause is a concern.

On interest rate, my experience is that a seller finance buyer usually has to pay a few points above the going interest rate for conventional/FHA lending so probably closer to 7% these days although it never hurts to ask for lower...

All of this is theoretical so the advice to chat with seller to get more information is the right next step.

Jeff

We make a lot of seller financing offers and it IS a great way to get closer to a sellers asking price, particularly when their sales price may not be realistic.   I interpret your summary that your end goal is to sell it with seller financing and not payoff the note to your seller for the 5years?

I like how you are thinking - refocusing the seller on the total payments over the period of the loan rather than just the sales price.

Does the seller need the cash to buy the next home?  If so, Seller Financing may be a tough sell.   Also, the gap between the sellers mental sales price and your sales price may be too big.

If he is open to seller financing, we like to make 3 offers and "steer" the seller towards seller financing with small downpayments.   Assuming your 5yr balloon structure with 5% interest, Maybe something like:

- $230K - Cash Price. (Cash + Conventional Mortgage)

Total Paid:  $230,000

- $240K - Seller Financing ($230K financed, $10K down payment)

        Total Paid: $295,287  (Downpayment, all P&I payments, balloon payment)

- $260K - Seller Financing ($260K financed, $0K down payment)

Total Paid $322,499 ((Downpayment, all P&I payments, balloon payment)

If you can get him all the way down to your example of a $200K sales price ($260K total paid) all the better but it feels like a bit of a stretch.

I don't have all the info so this may not track completely to your example but your basic idea of refocusing the seller on the sum of total payments, vs. the sale price, is a great strategy...

One of the nice things about seller financing is that sellers and buyers have broad flexibility in creating a win-win.

Many seller financing sales use 5-10 year balloons so if your friend, the seller, wants a structure where he gets paid off in a time frame less than 30yrs, you certainly have the option to buy it with a balloon loan from the seller and than sell it with a baloon loan to a buyer.   You'd want the interest rate on the 2nd loan (Wrap Loan) to be higher than the interest you are paying the seller to ensure you are making some interest income via the spread of some kind.

You can also ask for some kind of downpayment.   For a $170K house, something like $10K-$15K would be typical

I may not have all the info...

Hi Dennis - I don't have enough info to reply?    You own the home and are flipping it?

Typical seller financed terms usually assume $10K-$20K downpayment and an interest rate at least a few points north of prime (right now, >7%)   It can be 30yr fixed or 5-10yrs with a balloon.

These are really rough guidelines but every deal is different depending on your strategy...

If the seller does not need the cash right away, you could see whether he'd be willing to offer seller financing...   You could certainly structure it as a portfolio loan.   You could offer the 20% down with maybe a little higher interest rate to sweeten the deal for the seller.    It all depends if the Seller needs the cash "right now" or would still like some cash flow...