If I make a deal with a seller to seller finance some property he owns free and clear for 5 yrs or so then refi it would what I’ve paid directly to him up to that point count as a down payment (minus interest paid)? This would be a commericial deal so it would need 20% down when I refi, I would be putting all incoming rents solely towards paying the seller financing with the rest banked for reserves.
I know a guy that owns a few apartment buildings free and clear (was left them by his father). I know he often gets annoyed with them and probably would sell them if the price was right.
Yes, all money that you give the seller (down payment-monthly payments) would count towards the purchase of that property.
Just make sure that the Land Contract- Private Mortgage is recorded at your local court house.
Also, make sure that all money you give to the seller is in check or money order form, as to have a paper trail that payments were made on time every month.
So they would be considered a down payment in terms of the lender giving me a loan 5 yrs down the road?
I would want to use a company like this to service the loan to create a full legal paper trail.
http://circlelending.com/
You could, but the seller would have records of the down payment & payments made.
The way i have bought & sold property with owner financing is, as the seller i would have my attorney draw up the private mortgage between myself and the buyer.
Then contact a local title company for a closing, as if you were closing with a bank.
As the seller, would keep records of payments made (no brainer) and you as the buyer would do the same.
You can save money by not paying a loan sevicing company, just by having the paper trail and good record keeping.
If the seller is going to hold the mortgage for 5-years, you should be able to finance the property as a refi not a purchase, with no problem.
Good Luck !!
Sundown,
To piggy back off your post.
How many payments would need to be made before a financial institution would look at this as being a refi vs a new purchase? Or is it based on a time frame?
Rick
I would be looking to make about 5 yrs worth of payments before trying to refi so that shouldn’t be an issue. With no down to put towards this I am thinking this would be a good way to get the required equity to make this happen. There are multiple properties here that would be bought so the refi would be a commercial blanket loan. Buildings are from 2-8 family each.
LR, with a down payment to a seller and your monthly payments being made on time to that seller, i have been told by my commercial lender 12-18 months.
But, i have never tried to refi that soon, i have allways refied after 24-30 months or longer so there is no question as to my equity in the property and payment history of being on time making the payments.
Rich, if you don’t have a down payment, i would run the numbers to make sure that your payments for the five years will leave you with at least 20% equity in the property at the end of that time frame.
If you can have the equity at the end of the five years, i don’t think you will have a problem on a refi.
It definitely seems like I will have enough equity after that period of time based on numbers I’ve ran. If he’s flexible I might even go out even longer if needed to make sure I will have enough equity. I will definitely be sure to have all of my numbers down up front before I make the offer and get the payment schedule and duration locked down. This set of buildings is not going anywhere, the owner is not trying to sell them at this point. I’m definitely going to make an offer after I have a few smaller deals done. Maybe go after this one towards the end of the year. Right now I’m just trying to get my creative juices flowing and try to think outside the box a little.
I don’t know how the market is in your area, but if you are willing, you could offer to purchase the buildings, at today’s fair market value, do all the maint., rent collecting, advertising and so on.
What ever the buildings cash flow is, that would be the payments, minis say, 12% to help you pay for the advertising & maint. cost.
In other words, you would own the buildings, but would only get a management fee for the 5-6 years untill you refi.
That would get him out from under them, which that is what he wants, and get you in the position as owner to refi. the buildings.
You would also have the equity that has built up over that 5-6 years, thru market growth and the payments you have made.