Overview of BiggerPockets’ “How to Buy Your Next Rental With Seller Financing”
On the Real Estate Rookie podcast, Ashley Kehr and Tony Robinson explain how investors can buy rental properties with seller financing. In this arrangement, the seller acts as the lender: the buyer pays an agreed down payment and repays the remaining balance over time. The hosts walk through how to find willing sellers, negotiate terms, and document and manage the loan.
How to Find Seller-Financed Deals
Seller financing may appear in listings, especially for commercial properties, but the hosts say many deals come from approaching sellers directly. They suggest:
- Contacting owners of expired listings or properties that have been on the market for a long time.
- Looking for long-time owners who may have paid off their properties, and asking a landlord whether they would consider selling.
- Checking listing sites and investor groups for terms such as “seller will carry” or “owner financing.”
- Presenting seller financing as one of two offers: a lower price with traditional financing, or a potentially higher price with seller financing.
A seller may value regular income from monthly payments or may be interested in discussing the tax implications with their own adviser. Kehr suggests asking whether the seller is open to financing and, if they are unsure, encouraging them to speak with their tax or financial professional.
Negotiate the Full Package of Terms
The purchase price is only one part of the deal. Buyers and sellers can negotiate:
- Down payment: There is no universal amount; the hosts describe deals ranging from little or none to around 20%.
- Interest rate and payment structure: A higher purchase price might work if the rate or monthly payment is lower. Interest-only payments can help during renovations or while a property’s operations ramp up.
- Amortization and loan term: Payments can be calculated over a long period while the full balance comes due sooner in a balloon payment.
- Balloon payments: The agreement can set one final payoff date or schedule partial lump-sum payments along the way.
- Prepayment penalties: These may reassure a seller who wants a certain return, but buyers should understand the cost of paying off the loan early.
Robinson’s motel deal illustrates how the terms can fit a project’s timeline: it had a 7% rate, three years of interest-only payments, a 25-year amortization schedule, and a 10-year balloon. The hosts emphasize that these are examples, not standard terms.
Protect the Property and Clarify Responsibilities
The agreement should explain what happens if payments are late, the buyer defaults, or either party wants to sell or transfer their interest. The hosts recommend clearly assigning responsibility for property taxes and insurance, and describe using an escrow or loan-servicing company to track payments and handle tax and insurance disbursements.
They also stress that a seller-financed loan is still secured by the property. In their examples, the buyer received the deed, while the seller’s lien was recorded against the property. If the buyer defaults, the seller may have foreclosure rights under the agreement.
Put the Agreement in Writing
Kehr recommends starting with a letter of intent that outlines the property, price, down payment, interest rate, payment schedule, balloon date, and contingencies. After the parties agree on the main terms, an attorney should prepare or review the final documents. Robinson also recommends working with an attorney familiar with the state where the property is located.
The hosts advise using a loan servicer if helpful, and making sure the deed transfer, recorded lien, and payment records match the agreement. Proper documentation establishes who owns the property, what the seller is owed, and how payments will be handled.
Key Takeaways
- Seller financing can make a purchase possible when conventional financing is costly or unavailable.
- Compare the complete terms—not just the price—with a traditional-financing scenario.
- Structure payments, balloon dates, and down payment around both the property’s needs and the seller’s priorities.
- Use clear written documents, an experienced local attorney, and reliable loan servicing to carry out the agreement.