I have asked the seller to provide seller financing in order to pickup (2) properties. (I can get one with 20% down, but I don’t have the cash to pickup both.)
I want to offer 10% down on both properties, seller to finance the remaining 90%. The seller is agreeable, but they want the terms to include a 3-5 year balloon.
I’m assuming that after 3-5 years I could qualify for both mortgages (…because I would be able to claim the rental income for that length of time.)
Is there anything that I should be mindful of?
finding a seller that is open to that these days is quite rare.
just make sure that you are not paying too much for the house and that the interest rate on the contract is lower than 7%
I don’t know, man. This is the kind of thinking that got a lot of people in trouble with their loans today (I’ll be making more money in 3-5 years when my rate starts going up from this tiny teaser rate I have now, my home will be worth more in 3-5 years so I can refinance at a good rate and not have to put any money into it, etc.).
Add to that the fact that you are looking to get loans on investment property; which is being underwritten more tightly now than ever.
The rental income history will help (if you are able to keep them fully rented without long periods of vacancy).
He is probably talking about offering you a contract for deed instead of a standard mortgage with a balloon note. If you can’t get financing for that balloon when it comes due, you lose it all (property, all the money you’ve put in to date) and he doesn’t have to go through all that pesky court stuff to get a foreclosure.
I hate being the wet blanket, but wanted to give you some of the gotchas to think about. Good luck.
There are a ton of things to be mindful of.
What happens if you cannot pay the balloon? Do you lose everything?
What is the interest rate of this OC?
Who pays for what during the contract? (Taxes and insurance, for instance)
Some sellers have been fleecing all sorts of unwitting folks with their OC contracts. There is a rent-to-own, owner carry, what have you, not far from my house that has gone through a few sets of potential owners because the seller has an unreasonable contract that almost no one could satisfy. It’s working for him, he keeps their deposit and gets a new victim. I drove by and saw the FSBO sign is up again.