Mel Dorman is the proud owner of a triplex in Portland, OR, financed via an unusual means: a loan from the home’s sellers. Here’s how she pulled off this purchase by putting down just $500, along with some advice on following in her footsteps.
How’d you land this triplex for a mere $500 down? “For six months, every morning, I read my affirmation: I will buy a seller-financed property. For those unfamiliar, seller financing is when a homebuyer pays a seller directly instead of using a bank loan. That’s how a broke person like myself could afford to buy a rental, which is my second investment property.”
Did that affirmation work? “In 2017, I cold-called a guy to find out the person I was looking for was dead. Awkward. But in a twist of fate, I met Kelly, the deceased man’s attorney. Since I was a new real estate agent, a few months later, Kelly asked me to assess the value of his triplex. He’d owned it for 15 years with plenty of equity—prime for my first seller-financing deal. When we toured the building, before I could even ask, Kelly read my mind and said, ‘I’d like to seller-finance this to someone.’ My morning affirmations had finally paid off!”
How much did you pay for the triplex? “$730,000, at 5.5% interest-only payments. He wanted $75,000 down—a reasonable ask, but I didn’t have it. So I bravely inquired, ‘How much would it cost for you to foreclose on me?’ Kelly said ‘about $15,000.’ I said, ‘Let me pay you $15,000 down. If I don’t pay, you can use my own money to foreclose on me.’ He agreed. But there was still one problem: I didn’t even have $15,000. So Kelly let me borrow $10,000 from friends in a second-position lien. At the closing table, I brought just $7,000—$5,000 for the down payment and $2,000 for closing costs. With two of the three units vacant, I negotiated a two-month delay before my first payment was due. By the time I cut the first check to Kelly, I had rented those units out and recouped $6,500 of the $7,000 I had initially invested. All in, I was $500 out of pocket for a triplex in Portland!”
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Got any advice for investors who want to pull off seller financing? “Seller financing is a lot like dating: You have to talk to many people to find the right fit. For my first deal, I sent hundreds of personalized letters and cold-called potential sellers for hours each week in search of my first deal. When meeting with sellers, I start by building trust: You don’t want to come on too strong and scare them off. Once I understand their goals, I introduce seller financing as a way to maximize profits, defer capital gains tax, and create passive income. Then, I lay it out next to a traditional bank offer so they can see the difference. Usually, I can offer a higher price if they accept interest-only payments, which keeps my costs down and puts more money in their pocket. Seller financing’s flexibility makes it a win-win, and like any great relationship, it starts with mutual understanding and trust.”