Home Buying in 92604>Question Details

Xunkn0vvnx, Home Buyer in 90806

Irvine, CA - How would you offer on this seller financing home?

Asked by Xunkn0vvnx, 90806 Sat May 14, 2011

Irvine, CA 92604
$520,000 (Asking = Approximate Market Value)
3/2 - 1,500 square ft rents for $2,100

The owner has a free and clear title and is willing to seller finance it. The selling agent wouldn't give me any details other than that he wants to be out of the property completely in 5 years, but is willing to carry some debt now as long is it is secured by a credit worthy buyer.

I am the buyer and typically invest for long term appreciation, cash flow income (I think it's a fools dream to invest on property appreciation/speculation). I have sufficient funds to cover the property, but having a balloon payment in 5 years bothers me. Is there anyway to structure this so that in 5 years and the housing market still hasn't turned around (or interest rates go up) I have options?

What can I offer him or do to put myself in a good situation to profit? Offer under market value, take title, and keep on market to try and resell for higher price? What is your standard seller financi

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The problem with seller financing is for some reason you can't get a traditional loan, you NEED the owner to carry for you. The owner knows this & likely won't dump his price down that low if you're going to take advantage of him carrying financing for you. He doesn't want to carry financing forever, you'll need to take the proper steps to ensure that you can refi out if within 5yrs.

To get a lower price ask for a 2-3.5yr term. Even if you just had a bankruptcy that would be enough time for you to turn your credit around & refinance out. The big variable is where will interest rates be in 2-3.5yrs? Will they still be under 5.5%? That's the risk you take now.

OR you get on the right path to fix your credit now & buy in 1yr & be able to choose from any property that's on the market & not have to worry about finding an owner to carry. You then go & buy a foreclosure or short sale property & get the lowest end of fair market value to increase your cash flow & get that gap you want between "great deal & fair market value".

562-430-3053 cell
Realtor Since 1996
1 vote Thank Flag Link Sat May 14, 2011
Hello XunknOvvnx, Sorry your agent would't help you out. He may not know how seller financing works. It is just like a regular sale only with the seller is being the bank and wants to be paid off in 5 years. This sounds ike a loan that can adjust in 5 years but you don't have to qualify again. If you can qualify on your own of course do that, otherwise you would have to qualify for the remainer loan amount. You do settle on a price thats for sure. Bye for now.. Ingrid Ski Realtor
1 vote Thank Flag Link Sat May 14, 2011
Seller financing is my specialty. There are a few ways to protect yourself from a loss of value and investment, #1 being having an option to renew if value isnt there in 5 yrs. You can have a 3rd party appraisal done at time of balloon to determine value. Keep in mind, if the seller is carrying the loan to defer capital gains, they probably dont want to get paid off any time soon.

0 votes Thank Flag Link Wed Sep 4, 2013
Now is not the time to look for short term increase in prices. The purpose of seller financing is only if you cannot get your own financing. If that is the case, take the sellers financing for 5 year term interest only. If your income is good you can refi with a direct lender after a year or two showing that you have good credit, showing that you have paid your payments regularly and then you can get a 30 year fixed.
If you are using the seller to do financing, you can always pay more with each payment and lower your balance to increase your equity. We have great lenders to assist you now. You can get a 4% 30 year fixed on your home if you have the credit with only 3.5% down. Why would you do it any other way
Contact us, we will be happy to assit you
0 votes Thank Flag Link Thu Nov 3, 2011
I would tackle this in three ways:

1. assignable lease purchase option for a 5 year term. You can then qualify for a refinance as well as an investment loan. Also, you can pull out if it is not to your benefit.

2. Seller financing with a silent second. Basically seller finances the remaining down payment needed to secure a traditional lender loan.

3. Have the seller finance you a 30 yr amortized loan and help the seller find people who will purchase the note from him.

Also, I just leased out a 1500sqft 3/2 detached in Woodbridge for $2650 (with a lot of interest) and I own a 1135sqft 3/2 attached in Woodbridge which is rented out for $2200.
0 votes Thank Flag Link Tue May 17, 2011
This looks like a bad deal for everybody,including the brokers on both sides.
1. You:
A. Paying mkt for an alligator in a declining market... The property you allude to could either be an SFR or a condo in Woodbridge. Let's assume it is a detached home with minimum taxes (1%) and no HOA, $500k price, 10% down.
Principal & interest is apx $2700, total about $3220. Rent is $2100.. monthly negative $1120... Not the kind of cash flow I assumed you meant.
2. Seller: 90% financing extended to you with NO mtg insurance in a declining market. High risk of default seem clear to me.
3. Brokers: Don't know how either one (or a dual agent) could counsel their clients to do either side of this transaction.
0 votes Thank Flag Link Sun May 15, 2011
I have great credit. The problem I have is that traditional bank financing requires 25% down payment for investment properties. An ideal situation would be to give the seller $50,000 down and then have a 30 year amortized loan for the full purchase price at 6%. The advantage to the seller is that I am basically taking over the property so that he doesnt have to worry about it anymore, and he has my $50,000 guarantee in addition to my great credit that I will not walk away.
0 votes Thank Flag Link Sun May 15, 2011
PS: You mentioned that you "invest for long term appreciation..."
It is usuallynot prudent to do this with short-term financing, "betting on the come" that you will be able to refinance 5 years in the future, when rates will likely be higher, and, with the pending demise of Freddie and Fannnie, financing may be quite difficult to come by.
The seller's desire for short-term return should not bind you to a possible capital loss.
0 votes Thank Flag Link Sat May 14, 2011
What is the value to you of the owner financing in this time of low interest rates?
What are the terms of the owner financing (other than the 5 year balloon?)
Throughout the 80's I NEVER put together a transaction where there didn't exist a "back door" for renegotiation, depending on the market at the due date of the note.
I see no reason why it it would be prudent for you to fail to get renegotiation agreement now, as I expect interest rates to go considerably higher in the next 5 years.
0 votes Thank Flag Link Sat May 14, 2011
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