Curious if anyone could share some real-world examples of seller financing deals/terms they've put together? I'm wondering what the market will bear on the high side of interest rates + amortization schedules?
These are the basic terms I've offered on several seller financed deals on lower-end properties.
- 3 year term
- 10% down (or however much will cover my initial investment)
- 9.99% interest
- Add an additional $25 per month to cover the monthly servicing cost (this pays for whatever software or loan servicer I'm using)
- If the annual property tax bill was $120 (for example), I could divide this by 12 and add another $10 to the monthly payment
For example, if I have $2,000 invested into a property and I'm selling it for $10,000 with seller financing, I could ask for a $2,000 down payment, and amortize the remaining $8,000 balance over 3 years (36 months). If I plug these numbers into a mortgage calculator, I can see that the payment would be $293.10 - this is AFTER I've been made whole from the $2,000 down payment, so that monthly payment for the next 3 years is pure profit.
Keep in mind, another way to approach this would be to simply charge 0% interest and increase the purchase price (you can highlight this as a selling point, and it can potentially simplify things a bit too... but it's really up to you and the buyer).
Feel free to run whatever scenarios you want on our free mortgage calculator.
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thanks seth, you the man
So I've only sold two properties so far, but I've been wondering myself if others with more experience would see any disadvantages to the way I seller financed the second one...
I acquired the property for $1,796 all in, including price paid to the seller, back taxes, some title clean up work and closing costs. I marketed it for sale for either $6,900 cash or seller financed at $695 down and either $149 per month for 60 months or $199 per month for 42 months. But a very interested buyer said to me that he wanted to finance it, would gladly pay a higher down payment and longer term, but needed his monthly payments to be no more than $99, so I offered to sell it to him for $1,895 down and $99 per month for 72 months, and he agreed. Despite the longer, 6 year term, I was actually happier with this than the financing scenarios I had marketed since I got all my money out plus $100, right away.
The part I've wondered about in terms of advantages/disadvantages is how I structured the financing in relation to the sales price and interest. I took the $7,128 in financed payments we agreed to (72 X $99), added that to the $1,895 down payment and just inflated the selling price to $9,023 total and called it a 0% loan. I figured this was to my advantage compared to having a lower nominal sale price but higher interest on the financed portion, because in the no-interest/higher-sale-price approach, if the buyer decides to pay off the property at any point early, I'll still get the full $9,023 (and as a bonus, being a lazy person, I figured I won't have to deal with any messy interest based amortization calculations, too). I did include a % based penalty that would kick in every month should the buyer stop paying, which was the only advantage I could think of, otherwise, with an interest-bearing scenario. Maybe there's a relative trade off to this approach I haven't though of yet, though?
Edit: Oops, just read Seth's post above more carefully and saw his last paragraph. Sounds like there's nothing wrong with the "0% financing" approach. As I said, I think it actually has some advantages. The person I was working with at the title company kind of acted like I was crazy to seller-finance something at 0% for 6 years. I figured she just didn't have all the information that I do, but it's good to have confirmation on that.
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If you need financial assistant in form of loan to close your deals or purchase of properties Hit me up
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