Tag: seller financing

Most people think buying multi-family property means walking into a bank and hoping for a yes. Plenty of investors do it another way. Here are six common routes, what each one really involves, and how to protect yourself on every one of them.

In this article

1. Why investors look beyond the bank
2. Seller financing
3. Assuming the seller’s existing loan
4. Private money
5. Hard money
6. Partnerships and joint ventures
7. Lease options and creative structures
8. A deal check before any structure
9. Mistakes that sink bank-free deals
10. How to find sellers who will finance
11. A one-page term sheet to start the conversation
12. Due diligence for any bank-free deal
13. A bank-free deal, start to finish (illustrative)
14. Structuring a partnership without losing control
15. Building credibility when you are new
16. Legal and tax checkpoints before you sign
17. Terms you will hear in bank-free deals
18. Frequently asked questions

Why investors look beyond the bank

A bank approval depends on your income, your credit, your debt-to-income ratio and the lender’s appetite that month. A good multi-family deal does not wait for any of that. Sellers who are tired, retiring or sitting on a building with deferred maintenance often care more about terms than about the highest price, and that opens doors a loan officer cannot.

“Without a bank” does not mean without rules. Every path below still needs a written agreement, a title search, insurance and a real look at the numbers. What changes is who is on the other side of the table and how flexible they can be.

1. Seller financing

The seller acts as the lender. You agree on a down payment, an interest rate, a term and a payment schedule, and you sign a promissory note secured by the property. It is a common bank-free path for small multi-family because the seller already understands the asset.

Terms to negotiate: down payment, rate, amortization period, balloon date, who pays taxes and insurance, and whether you can prepay. We walk through each of these in our guide to seller financing for rental property.

2. Assuming the seller’s existing loan

Some loans can be taken over by a new buyer with the lender’s approval. FHA and VA assumptions are mostly owner-occupant tools (those programs cover one-to-four unit homes and generally expect the buyer to live there), so they are rarely open to investors. Larger buildings usually carry commercial or agency loans with their own assumption rules, and most conventional loans carry a due-on-sale clause that lets the lender call the loan if the property changes hands. Taking title “subject to” an existing loan without the lender’s consent can trigger that clause, so get an attorney involved before you consider it. If the rate on the old loan is below today’s market, an assumption can be very attractive, but the lender still reviews you, so it is not truly bank-free. Ask the seller for the loan type early.

3. Private money

Private lenders are individuals who lend against real estate: a business owner with spare cash, a retired investor, a family member. Terms are whatever you and the lender agree to, so a clear one-page deal summary, a real exit plan and a recorded mortgage matter more than a polished pitch. Expect to pay for the flexibility, and never promise returns you cannot document.

4. Hard money

Hard-money loans are short-term, asset-based loans that fund quickly. They usually cost more than bank debt and come due in months, not decades, so they work best when you have a clear plan to renovate and refinance or sell. Run the full cost of the loan, including points, fees and interest, through your numbers before you say yes.

5. Partnerships and joint ventures

One partner brings the deal and the management, another brings the cash. A written operating agreement should cover who decides what, how profits and losses are split, what happens if someone wants out, and who covers surprises. Raising money from passive investors can trigger securities rules, so talk to an attorney before you pitch anyone.

6. Lease options and creative structures

A lease option gives you the right, but not the obligation, to buy at an agreed price within an agreed time. Other structures, such as wrap-around notes or taking title subject to an existing loan, carry real legal and lender risk. Treat anything you cannot explain in two sentences as a reason to slow down and hire counsel.

A deal check before any structure

Financing cannot rescue a deal that does not work. Before you negotiate terms, confirm that the property can carry its own debt: verify the rent roll against signed leases, build realistic expenses, and compare net operating income with the payment you are proposing. Our guide to analyzing a multifamily deal in 15 minutes shows the math, and the 2 Minute Offer Tool gives you a fast first pass.

Mistakes that sink bank-free deals

• Verbal deals. If it is not in a signed agreement, it is not a deal.
• Skipping title and insurance. Use a title company or attorney so you know what you are buying.
• Balloon dates with no exit. A balloon in three years needs a refinance or sale plan today.
• No reserves. Older buildings surprise you; keep cash set aside.
• Ignoring due-on-sale. If the seller has a loan, find out what it allows.

How to find sellers who will finance

Sellers who accept terms are not hiding on a list. They are owners whose situation makes terms attractive, and you find them by talking to people.

• Long-time owners. A landlord who has held a building for decades often owns it free and clear and does not need a lump sum.
• Tired landlords. Owners who are worn out by management may value a smooth exit and steady payments over a top price.
• Retirees and estates. Monthly income can be worth more to them than a large check and a tax bill.
• Buildings that struggle to finance. Deferred maintenance, mixed use or odd layouts can scare off bank buyers.
• Expired or stale listings. A building that did not sell may be ready for a different kind of offer.

When you reach out, lead with a question, not an offer: what would the ideal sale look like for you? Then listen. The answer tells you whether price, speed, taxes, privacy or income matters most, and you can build the terms around that.

A one-page term sheet to start the conversation

A short, clear term sheet shows a seller you are serious and keeps both sides focused on the same numbers. Your attorney turns it into a contract, but you can draft the first version yourself:

1. Property address and purchase price.
2. Down payment and when it is paid.
3. Amount financed, interest rate and amortization.
4. Balloon date, if any, and whether you may extend or refinance.
5. Who pays taxes and insurance, and how often you show proof.
6. Prepayment rights and any late fees.
7. Due-diligence period for inspections, leases and financials.
8. Closing date, closing agent and who pays closing costs.

Due diligence for any bank-free deal

When no lender is checking the property for you, you have to do it yourself.

• Rent roll and leases that match, unit by unit.
• Twelve months of income and expenses, plus bank deposits to confirm rents.
• Tax bills, utility bills and insurance history, including prior claims.
• Inspections for structure, roof, mechanicals and safety, with a rehab estimate.
• Title search and survey to confirm who owns what and what is recorded against it.
• Zoning and certificates of occupancy so the unit count is legal.
• Tenant interviews or certificates to learn about side agreements and open issues.

The deeper you dig before you sign, the fewer surprises you finance later.

A bank-free deal, start to finish (illustrative)

Picture a six-unit building listed at $480,000. The owner is in his late sixties, owns it free and clear, is tired of 2 a.m. calls and wants monthly income more than a lump sum. Each unit rents for about $900.

You offer $480,000 with 15% down ($72,000) and a $408,000 seller note at 6% over 25 years with a balloon in seven years. The payment is about $2,630 a month, or $31,500 a year.

Line	Annual
Gross potential rent (6 x $900 x 12)	$64,800
Vacancy and credit loss (5%)	−$3,240
Operating expenses (45% of effective income)	−$27,700
Net operating income	$33,860
Debt service on the seller note	−$31,545
Cash flow before reserves	about $2,300

The cap rate is about 7.05% and the debt service coverage ratio is about 1.07. That is thin, and it is exactly what the exercise is for. To make it work you could negotiate a lower price, a longer amortization, a lower rate, a larger down payment or an interest-only period, or you could walk away. After seven years the balance would be about $347,000, so you also need a refinance or payoff plan before you sign. Illustrative numbers only.

Structuring a partnership without losing control

Partnerships are the other common route when your cash is limited. A clean one usually separates two jobs: the person who finds, negotiates and manages the deal, and the person who supplies capital. Whatever the split, write down:

• Who decides what. Day-to-day decisions, major decisions (sale, refinance, big repairs) and who can sign.
• How money flows. Whether capital is returned first, whether there is a preferred return, and how profits and losses are split.
• What each side contributes, including time, and what happens if someone cannot meet a capital call.
• Exit rules. A buy-sell clause, valuation method and a deadline for deciding.
• What happens if someone dies, divorces or goes bankrupt.

If you raise money from people who are not involved in running the property, securities laws can apply. That is a job for an attorney before you advertise or promise anything.

Building credibility when you are new

A seller has to trust that you can close and pay. If you have no track record, make it easy to say yes:

1. Bring a one-page deal summary with your numbers, your plan and your exit.
2. Show proof of funds for the down payment and reserves.
3. Name your team: attorney, title company, insurance agent and a property manager or contractor you will use.
4. Start smaller. A modest first building with a motivated seller teaches you more than a large one that stretches you.
5. Offer references from past landlords, employers, partners or lenders.
6. Keep every promise, including the small ones. Sellers talk to each other.

Legal and tax checkpoints before you sign

• Attorney: a real estate attorney should review or draft the purchase agreement, the note and the security instrument.
• Title and survey: confirm ownership, liens, easements and boundaries.
• Entity and insurance: ask your attorney and agent whether to hold title in an LLC and how a lender or seller will treat that, since some loans restrict transfers.
• Transfer taxes and recording: budget for them; they vary by state and city.
• Accountant: talk through depreciation, interest deductions and the tax effect for both sides before closing.
• Licensing and local rules: some cities require rental registrations, inspections or certificates of occupancy before you collect rent.

Buying without a bank removes the lender’s underwriting, not the laws. If you want a structured path through finding, funding and managing these deals, the Landlord Coaching Program covers it in 20 video modules with forms you can adapt.

Terms you will hear in bank-free deals

Term	Plain-English meaning
Promissory note	The written promise to repay a loan, with the amount, rate and payment schedule.
Mortgage or deed of trust	The document that secures the note against the property so the lender can take it back on default.
Amortization	The schedule used to calculate payments, such as 25 or 30 years, even if the loan is due sooner.
Balloon payment	The remaining balance due on a set date, often after several years.
Due-on-sale clause	A term in many loans that lets the lender demand repayment if the property is sold or transferred.
Lien	A legal claim against a property for a debt.
Loan-to-value (LTV)	The loan divided by the property’s value; lower means more cushion.
Debt service coverage ratio	Net operating income divided by annual debt payments; shows whether the property can carry the loan.
Subordination	Agreeing that another lender’s claim comes ahead of yours.

If any term in a document is unclear, stop and ask your attorney to explain it. A deal is only as good as the paper behind it.

Frequently asked questions

This article is general education, not legal, tax, financial or investment advice, and it does not promise any result. Laws and lending rules differ by state and city, and numbers in examples are illustrative. Talk to your own attorney, accountant and lender before you act.