Sellers want 7-8% interest on owner-financed deals, but that rate often kills the cash flow for buyers. The workaround: buyers put down 40-50% upfront, sellers accept less interest because they get paid most of the principal immediately, and everyone avoids IRS trouble by staying above 4%.
Around 4% (as stated by a speaker).
Yeah, I mean, it's a lot of times the sellers that I work with.
Like, they all want a 7 and an 8% interest rate. But the reality is the deals just don't pencil out. You know, from an investor perspective, you know, to be able to cash flow.
That property, especially with how I'm getting.
You know, the, how I'm structuring the deal, you know, I still have another loan on the property, right. So there's still debt that needs to be financed and there's a monthly payment with that.
So really, I mean, I would, I guess I would ask, like, what would.
Be the down payment? Like, what would that need to look like to where the monthly payment was, like, really, really minimal. Because from looking at this deal, like, I don't think it can support a super high monthly payment and definitely nowhere near 7%, if I'm being honest.
Well, as I said, that's, that's what he's looking for. We've had several other proposals, but a lot of people are not even mentioning interest or not even expecting to pay interest. What kind of interest rate are you typically paying on the, that you're doing?
Honestly, I'm usually not paying anything. Like, it doesn't.
A lot of deals just don't pencil.
Out without a seller, you know, willing to, you know, work with, with the buyer in terms of creating a scenario where the buyer can cash flow every month and pay the bills. And like the seller, they win at the end whenever they get their balloon payment or, you know, have some nominal payment. But what they'll typically get is a larger down payment up front, which they're super happy about.
So it's not a good fit for everyone. But a lot of times, you know.
If a seller is willing to take, you know, 10% down and I come in with like 40 or 50% down, they're super happy with that. And whatever payment they were expecting to get monthly, they essentially just get it up front.
Well, I do like that you are offering a higher down payment. That's, that's certainly attractive. But, you know, we have been advised that you need to at least charge what the, you know, I forget what the federal rate or the IRS arms length rate is around 4% or something. I'm not saying that's what he would accept, but my understanding is that you would at least need to charge that for IRS purposes, et cetera.
