Seller Financing (2 years exp. never done a deal like this)
Hey everyone,

Recently joined Reddit because I know it’s a great platform with tons of information. I’ve been in the brokerage world for 2 years now and have been loving it. I typically do quiet a bit of multifamily deals at a smaller firm within our market. 

With how things have been going in the capital/debt markets, traditional financing is becoming tougher and tougher with the bid/ask gap continuing to grow and cap rates not expanding enough to keep up with interest rates. 

I know seller financing is starting to become a more viable option for investors, but I have NO idea how it actually works. 

What if the property is free and clear? What if the seller still has 50% of the loan balance to still pay? What if seller only Carries down payment? What if seller funds entire purchase and acts as bank? How does it all work?

I understand there’s a few loaded questions in there, but I am hoping someone can help. If someone could also include an example with numbers to help understand how it all breaks down, it would be greatly appreciated! Thank you everyone!
[{"id": "is3os7u", "text": "1.\tSeller financing means the Seller uses available cash (post sale, so price minus remaining Seller\u2019s loan balance). \n2.\t For example, let\u2019s say the Seller pays $50m for a property with $25m debt and $25m equity. They want to sell for $100m. They could offer up to $75m of Seller financing since they have $100m price - $25m loan balance. \n3.\t If the property is free and clear, they can offer 100% of the sale price as Seller financing. \n4.\t Unless the loan is assumable, the Seller typically pays off the original loan. The Buyer can choose to put new senior debt on the property in addition to Seller note but the loan docs will be more complicated.", "replies": [], "depth": 1}, {"id": "is3ye7j", "text": "TechMeetsRealEstate pretty much summed it up for you.\n\nJust don't miss a payment.\n\nForeclosing on a seller financed property happens very quickly.\n\nPerform your due diligence as it regards financials as well as all of the other usual suspects (title, all liens, any judgements,) look at the past 3 years sellers taxes, I&amp;E, P&amp;L, etc.", "replies": [{"id": "is3zorw", "text": "Why would seller financing foreclosure be quicker than any senior lender foreclosing?", "replies": [{"id": "is3zvin", "text": "He already owns it, has title, etc\n\nIt really depends on the contract you draw up.", "replies": [{"id": "is40ar8", "text": "What do you mean he already owns it? With seller financing wouldn\u2019t he sell you the property and he\u2019d just hold a mortgage? I do not believe he\u2019d still own the property.", "replies": [{"id": "is41crx", "text": "There were a couple of scenarios in the 1st answer.\n\nIf you do the 100% seller financing he holds the paper and still owns the property.\n\nIf they hold 25% of the paper then in that case you'll get a loan from a lender, probably a private lender because most banks won't go for seller hold and you're not putting any \"skin in the game\", probably a bridge loan, possibly a private long term loan and in that case it would NOT be such a quick foreclosure if God forbid you get behind. You could go into forbearance / DIP and get out of it somehow - refi with a new lender with interest reserves or something along those lines while you stabilize.\n\nBut yeah - seller finance has its' drawbacks sometimes.", "replies": [], "depth": 5}, {"id": "is5nuay", "text": "Title should transfer unless you're in some screwball land contract or contract for deed situation. \n\nBut /u Fur-Frisbe is materially correct. What slows down traditional lenders is that they DON'T want to own the property. They are in the lending business not the landlord business. While in a seller financing situation the lender has already owned the asset and presumably are willing to own it again since they held the paper.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "ishvpqj", "text": "As I understand it there are two types: Seller financing with title transfer and seller holds mortgage /note and a security lien on property. Foreclosure is standard but seller may not offer any options to work out a deal, may just follow required timelines/notices and take property back. Banks don't want the property, they want their loan current so they usually try to work with you and that means things move slower. \n\nWith a Contract for Deed, title doesn't change hands until the owner financed loan is paid off. So easy to take back if payments are missed because title never transfered.  Don't do either without consulting a RE attorney and your CPA/tax advisor.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]