Owner may finance. How to structure? - Posted by LeonNC

Posted by Will on February 07, 2001 at 24:22:37:

Leon,where is this house at? location, city and state?

Owner may finance. How to structure? - Posted by LeonNC

Posted by LeonNC on February 06, 2001 at 23:15:42:

I’ve been talking with a guy across the street from a house I’m putting back together. He’s a tired landlord. He owns the house free and clear. The house is worth 40k and is rented to a section 8 tenant for 500 per month.

I told him the only way I’d buy the house is if he finances it. He is open to the idea. We talked back and forth for a while and it seems he’d take payments of $300 per month. He also wants a 40k sale price. The house is in great shape but in a “marginal” neighborhood. I’ve got one across the street so obviously I’m open to buying in the area.

I don’t want less then a $200 per month cashflow. If I give him $300 then I’m down to $150 per month because of taxes and insurance. I could probably get him down a little below 40k but not much. I mentioned a 10 year balloon when he started to bail out of the conversation and he came back around.

How can I structure this? Is $150 per month enough for an owner financed nothing down deal?



Re: Owner may finance. How to structure? - Posted by Bud Branstetter

Posted by Bud Branstetter on February 07, 2001 at 11:32:29:

The 300/mo on 40K at 8% is $293 for a 30 yr amortization. This would be normal if he were selling it to a homeowner. If he would reduce the interest rate to 6.25% or something similar then it might be worth it to get the lower rate but pay the higher principle. You can do l/o, pactrust or other devises to give you what you want. But remember, sooner or later, he will take a discount on that owner financed note. You can add clauses like 10% discount if you pay it off in the first year or first right to buy it if he sells it. It may take some more talking to him to feel the pain somemore.

Re: Owner may finance. How to structure? - Posted by phil fernandez

Posted by phil fernandez on February 07, 2001 at 09:58:04:


For me on a deal in that price range I’d want at least a $200 monthly positive cash flow. From the neighborhood it sounds like there’s not a great chance of much appreciation so the cash flow becomes even more important.

To get to your desired $200 a month cash flow you could either lower the price or offer a lesser interest rate that would produce the cash flow that you want. Everything in this business is price and terms.

Re: Owner may finance. How to structure? - Posted by BilLW.

Posted by BilLW. on February 07, 2001 at 06:39:01:

Leon, If the seller is stuck on his full price, he doesn’t seem very motivated. What did you pay for the house across the street, in comparison? If you really want this other house, why not tell the seller you’ll give him 2 choices:

  1. Since he want’s full price, you’ll pay it off $300 a month as a direct reduction on the principal. After 5 to 10 years, you’ll pay a balloon payment of the balance due. (between 4k and 22K). No interest.
  2. If he wants interest and the full price, tell him that you’ll pay the $300 from net collected rent proceeds. This means that you pay the $300 only if you collect the rent and also only after the operating costs have been deducted. If , for some reason, the tenant doesn’t pay their part of the rent, or there is some large expense, your payment will go down accordingly. Explain that you need to net $200 per month or you can’t do the deal. Any unpaid amount would accumulate on a separate account and be paid after the original debt is paid.
    If neither is acceptable to the seller, don’t buy it.
    Also, unless you really want to be a landlord, pass.
    Good luck. BillW.