All Forum Posts by: Sharon Kehnemui

Thanks, everyone,  especially Caleb for the laugh, and most recently, Wayne for the clarification.  Everyone has made me glad I joined this site.

Would any of you be interested in knowing how this plays out? We're going to make an offer this week (I am 99 percent sure).  Goal is to have all the questions answered before we sit down so we can sound amazing! You earned your Labor Day!

Oh, Wayne, you just threw me for a loop using codes I don't know. So can you answer this?

1) Do we pay the property tax for the house during the repayment period?

2) If we want to convert the property from residential to a business, does the repayment become lease income for them, and are they now depreciating the property on their returns? 

3) If it's lease income, how do any improvements to their property get treated tax-wise (it's our business expense, and we're paying the property tax)?

I'm thinking they just hold the loan, but they also hold the deed until final payment so I don't know what legal limits they could impose on us.

Feel free to tell me if I'm overthinking this part! Thanks for your insight.

John Wallace,  What is the implication of taxes on seller financing? If they're getting an extra $30,000 a year, is that treated as passive income from real estate?

Mike M. , I know everything about the seller's plans, as they're friends of ours. They also walked me through the house, told me the maintenance expenses and ages of all the systems so I have replacement costs in my business plan. 

The house is historic and beautifully maintained.  And it's not in the city proper, it's near the Eastern waterfront with access to private airports, marinas, and a golf course. It's extremely unique. As for Baltimore,  it does get a bad rap, it's not much like the way it's portrayed,  but our location is a gateway to the Chesapeake Bay, and I'm really thinking of targeting my local and regional market as a venue for weddings,  corporate retreats,  and family functions.

As for becoming profitable,  that's the question,  but even if it's a buy and hold, I'd rather just make one lump sum payment after tax season than rustle up a few thousand dollars every month. Money in the bank earns at least a little more money than money in my neighbor's pocket. 

Steven, the idea was to make the deal attractive to the sellers, but how would you restructure it to improve my situation and still be persuasive? Seven years, lower annual percents, less up front, smaller balloon? I should note the couple is about 60-61 years old, the husband is retired, and they are working on revitalizing another historic mansion in Ohio.

Hi, Joe, the plan evolved from my basic knowledge of business development and my solutions-driven raw ambition. In other words, I have spent six months trying to figure out a way to make it happen, reading about finance and real estate, and talking to community business owners (I should mention that I live in an area ripe, RIPE, for revitalization), and then forming the numbers as I reverse-engineer my business plan. 

And, yes, I agree that in the end, it's the sellers who will decide, but I joined this site to see how the world of real estate finance works, and so I do want feedback from people who turn numbers all day long.

I sometimes think I have really workable ideas and I need a head check against my gut check to see if I am tracking or tracking like a fox catcher (to paraphrase a popular phrase without reusing the word "crazy."). Thank you for your reply!

So, I'm aware I don't know what I don't know. For the 25% balloon, We'd refinance that with the bank (if we couldn't pay it off in full). Is there a typical interest on the balloon paid to the seller, and what would that be?

For the seven months, I just meant, rather than them getting the first year's annual payment 365 days after the deal, I'd start repayment at 183 days.

I should note that we know the sellers fairly well so I don't think we're "scary" to them, but I know this is "unconventional." Thank you so much for the feedback. It's very helpful.

OK, so I've never asked for seller financing, but my neighbors are selling their house, and we want to buy it as an investment (potential B&B, but not necessarily right away). We want to request seller financing, in which we'll give them 50% of the purchase price up front, a 25 percent balloon payment in five years, then split the remaining 25 percent over five annual installments (not paid monthly, paid once a year, starting on the first day of the seven month after the contract is ratified). As a seller, would you take that deal, and with what percent financing? 

Let me throw a wrench in the equation: would you be willing to take a lower first year annual payment if the interest were compounding over the five years? It's really sort of six-in-one, half-dozen in the other, but they'd have to be willing to take unequal repayments, growing over the five years. The advantage for us is to have six months to get the business up and running.

To put it in real numbers, I'm imagining a $580,000 purchase price, $290g down, $145g at balloon, and instead of paying $29g and straight interest each year, start at $25g and have it compound for five years. It's a seemingly small difference, and maybe doesn't really work, but just curious if it looks like craziness or a reasonable deal.

Also, I don't know, how one manages a default in the contract language (not that we will, but I'd want to protect both sides)? So guidance on that is helpful.

Thoughts? Thanks