Rental Property - Posted by Connie Fraizer

Posted by Brian W(IL) on December 01, 2000 at 14:49:41:

Thanks for the information Phil. I will keep this in mind when I finally start buying rental property.

Rental Property - Posted by Connie Fraizer

Posted by Connie Fraizer on December 01, 2000 at 08:41:56:

I would like to buy some rental properties. I have enough money to buy one. How would I buy the second one? Could I use the first property for collaterial? Would a bank give me a second loan? Would that depend on my income>

Please advise.

Thank you,


Re: Rental Property - Posted by phil fernandez

Posted by phil fernandez on December 01, 2000 at 08:49:21:

I accumulated 90% of my rental property through seller financing. That way you can buy as much rental property as you desire without being held back by banks strict qualifying criteria.

Also with seller financing I’ve gotten 5% - 8% interest financing compared to bank rates for similar peroperty.

Re: Rental Property - Posted by Brian W. (IL)

Posted by Brian W. (IL) on December 01, 2000 at 13:08:01:

Phil, I have a couple of questions for you. You stated that you purchased your rental properties using seller financing. How long did the sellers finance these deals for? Did you ever have to refinance or buy out the sellers? In other words, did you ever have to get your own financing for each of these deals and if so, what type of financing did you get?

Re: Rental Property - Posted by phil fernandez

Posted by phil fernandez on December 01, 2000 at 14:37:34:

Hi Brian,

Good questions. On two of my apartment complexes the financing was originally setup this way.

property #1 : $170,000 1st at 11% with 25 yr. term and 5 yr. balloon. That was back in 1986. Just prior to the 5 yr. balloon, interest rates had lowered so I told the seller that I would need to have the interest rate lowered from 11% to 8% or I’d put new financing at 8% on the property. The seller didn’t want to be paid off due to tax implications and liked the monthly payments. He countered back at 8 1/2% interest and we set up the mortgage to totally amortize on a 10 yr. term with no balloon. It took me about less than one second to agree.

property #2 : $255,000 at 8% amortized over 20 yrs with a 5 yr. balloon. Again as the 5 yr. anniversary was approaching the sellers didn’t want all of their money due to capital gains and extended the balloon out to another 5 yr period. All other terms remained the same.

It becomes evident that there are two main reasons why the sellers would extend the financing. One, they don’t want all their money due to tax concerns and two, they get used to and feel very secure and comfortable in receiving their monthly checks. Now this would not be the case in every deal, but you would be surprised at how many sellers who have held the financing want to continue the arrangement.

I’ve done many other deals too where the seller has just extended the mortgage with me. So far I haven’t had to refinance through a bank. But from the start I always make sure that I wil be in a position to get that bank financing if need be.

The main way I position myself is to originally start out with a 15 to 20 year amortization, not a 30 year one. I’m paying down the principal quicker and building up equity faster so that I would have the equity space necessary so I could easily get the bank financing through a lower LTV. I also like to pay down my mortgages with extra principal payments to further create a lower LTV in the future.

Although most of my owner financed deals are set up with 5 year balloons, I would suggest that you try to get 7 to 10 year balloons if at all possible. Five years comes and goes awfully fast. Once I bought a seller financed single family with a 25 year amortization with no balloon at 6% interest. But that is rare for that length of time without any balloon.

Hope this helps.