Ep 175 How To Deal With A Seller’s High Asking Price

We use the example of a seller asking 700K for a property worth only 600K. Here are the important things that have to work for you, if you overpay for a property-

1. These are probably deals you should hold yourself, so you don’t have to convince someone else to over pay for the property.
2. You need a low down payment because you are already overpaying for.
3. You need considerable principal paydown. Either by principal only payments or low hybrid interest rate for a longer term. 
4. You need to be able to pick your monthly payment. This is probably the most important thing.
5. You need a longer term 5-10yrs.

 

Let's say we offer 700K with 25K down. That's a light down payment. Now we need to pick a payment that works for us. So let's say you can rent this property for 4K/month then you would want your payment to be 2,500/month so you have some cash flow. Now you need a term long enough to end up at an 80% loan-to-value by the end of your term. So that when you refinance or sell the property you won’t have to come up with money out of pocket to do so. 

 

Now what kind of offer can we put together? Well, given that your financing 675K (PV on your financial calculator) and your payment is -$2,500 (PMT on your calculator), you need to play with the term (N on your financial calculator) and the interest rate (I/YR)...

 

Here is what I came up with. 

 

Purchase price 700K with 25K down. Present  Value 675,000. 1.8% interest for 10yrs (120 months) with a monthly payment of 2,500 would give us a balloon payment of $479,582.22 at the end of our term which is right where we need to be for 80% loan-to-value. This offer allows you to over pay,  to cash flow the property, and to be in a position to refinance at the end of your term without any significant money out of pocket. If the Seller wants a premium price then you need premium terms. By the way, if you can find a deal like this, you could earn about a 50% cash on cash return. That’s the power of Creative Financing.