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I am currently renting a house in Washington and the owners were wondering if I am interested in purchasing the house. We do like the house and would like to buy it. I would really like to buy with seller financing but would like to know how to go about negotiating that. I also want to know if it is a good idea to talk about buying a house that you are renting. Thanks for the help.
Eric
There is a section of the Forum titled Negotiations. You might find something helpful to your situation.
Based on what you’ve provided, I’m not completely clear what you’re trying to accomplish. Do you really want to own this house? Are you looking to add to or create a portfolio? And Don had some great questions – what is the owner trying to accomplish?
Once you’ve answered some of those questions for yourself I think you’ll have a better idea about moving forward.
Good luck!
We are currently renting for 1750/month. I am in the Navy so I will not be in the house forever. I know that I can rent the house out when I leave. Property Tax : $3,602.38. County Tax : $3,530.26. I don’t know what the insurance is. I would like to keep the payment around 1300/month. The owners live in Italy at the moment and are paying a property management company to take care of the house. I want to buy this house to rent out. I will live in it for at least 2 more years but after that it would be a rental. Thanks for the help. Let me know if there is any more info you need.
The owners want to sell the house because they are coming back to the area and want to have a house in a sub division for their kids. I want to use seller financing but I need to find the right way to approach the subject. What are the benefits of seller financing in this situation (for the seller). Thanks for the help.
Leah,
To work out a sale price and terms with owner financing, you have to think in these terms: The sale price can be fair market value as long as you can afford the terms.
On the terms, don’t even think about interest rate. Market rates have nothing to do with this calculation. Since your intent is to eventually rent out the home, you’ll need to do some market research to determine what market rent range is right now. Figure out what the middle of the market rent is, and subtract $50-$100/month from that.
Then, find out what the current taxes and insurance payments are. Back those out of the equation. Take 10% off the market rent to allow for vacancy, another 10% for repairs, and 10% for management. That’s the absolute MOST you would want to pay.
Then, tell the seller that if you do all this, if you’ll keep the house rented, keep the taxes and insurance paid, handle the vacancy and repairs, do all the required management, don’t you deserve SOMETHING for your efforts? Take another 10% off the market rent for profit, and that’s the best you can do.
Carefully explain all this to the owners; it’s easy to justify. Now, they’ll either take the deal or they won’t. If they take the deal, you can figure out your 30-year mortgage payment from that figure, the sale price, and a financial calculator.
If they need more money than that (need being defined as enough to cover their mortgage payment – anything more than that is a want), you’ve got two choices, and it all depends on your own financial situation.
Choice number one is easy: walk away from the deal, but keep asking the owners every few months or so.
Choice number two is a judgement call on your part. If you can comfortably afford to have the difference between what they need and what the property will generate, offer them this deal: You’ll pay their terms, but only if you get back $2 for every $1 you pay in equity. Example: You determine the property will generate $1000/month that you can pay the seller safely, but the seller needs $1100/month to cover his mortgage payment. Tell them you’ll pay the $1100, BUT, in addition to the equity generating from the $1000 portion of your profit, you want $200 in equity each month because of the extra payment.
Of course, in choice 2, you have to look at their financial situation, and make sure you don’t run into a situation at the end of your payments to them, that you’re supposed to be done making payments to them, but they’re still making payments to the bank. Don’t put yourself in that situation!
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