First Deal W/ Seller Financing
Hi,
This is my first potential deal with some seller financing, and I want to make sure my thinking is sane...
The property is a 4bed/3bath sfd worth approximately 220k. The seller is quite flexible, and currently owes 72k. What I'm thinking is, giving the seller his 220k with a 185k bank loan, and a 60k private mortgage (to the seller). Yes, that totals to 245k, I'm trying to get 25k out in cash after the closing (like a 125% ltv 2nd mortgage, kind of). The seller doesn't need much cash, but is really just in a hurry to get the house off his hands (he's moving to michigan). So, I'm pretty sure I can get the seller to do this, and with a deal where I make interest-only payments to him for 5 years, and then pay 10% for 30 years (I hope to have refi'd or sold by this time). Doing that, I can comfortably rent out the house for a 500/mo net income, or work out a lease option with someone.
I would appreciate any advice or opinions about this deal.
-Joe
Be careful I did one like this and could not afford to make the payments as it took 6 months to find a buyer. Had to end up selling back to the seller. He needed $25,000 to pay the IRS in a hurry and had build the house for cash to sell. Could not sell either. I bought for $50000 and borrowed $35000 and gave hime a $25,000 second. I still made $5000 cash but felt bad about the whole deal because I could not keep it. Make sure of the numbers and know the rental area
Good LUCK and Thank You
Hope this helps some
Ted Jr
Hello,
I would not take out a 125% LTV. I would also not pay 25k more than a property is worth; this is what I would do.
I would pay 200k for the place, and put it out on the market. In the paper I'd take out an add something, advertising something like, "10K down, buys you a home for $225,000 @ 8%/year for two years and $1,500/mo! $200 of which goes to your down payment at the end of the two years!"
When I had a buyer, I'd take'em to the mortgage broker and get them going so that in two years they could buy the place.
Thanks,
OnTheWater
I kind of like the technique. It's a very createive technique called over financing and has been working in real estate for decades. It's a great way to get startup money for more deals. If I had a deal like that, I'd go for it. Just be sure that the rent will cover ALL the debt and be sure you're not pricing yourself too far out of the market. One tip though. Once a year, ask the seller if he'd take a discount to settle the debt. Good luck.