Zero Down Seller Financing Strategy for Real Estate Investment

10-year Financial Projections, 5-year Financial Projections, Accounting, Amortization, Budget, Budgeting, Calculator, Cap Rate (Capitalization Rate), Cash Flow Analysis, Cash Flow Projections, CFO, Controlling, DCF Model, Debt Amortization, Debt Schedule, Debt Service Coverage, Discount Rate, Financial Analysis, Financial Feasibility, Financial Model, Financial Modeling, Financial Planning, Financial Projections, Forecast, Forecasting, IRR (Internal Rate of Return), Know-How, Mortgage, NPV (Net Present Value), Pro-Forma, Profitability Analysis, Revenue Projections, Scenario Analysis, Sensitivity Analysis, Terminal Value, Venture Capital

Video Overview:

I recently came across this strategy in my work and found it would make a great real estate analysis tool. The idea is to effectively reach 100% leverage with the use of seller financing, refinance, and a traditional mortgage. It works well when you are purchasing multiple distinct properties from a seller who is offering seller financing. You need to negotiate terms with the seller so that you agree on a total price for all the properties, but they agree to give you one or more of the properties free and clear (with the title).

Once you have some of the properties free and clear, you can go to a bank and get them refinanced based on some appraised value. The REFI proceeds can be enough to cover the down payment of the initial purchase. In this way, 100% leverage has been achieved. The seller is still getting their fair price (it is just that the price per property unit is higher for the those undergoing seller financing).

The nice thing about this plan is being able to buy real estate without having much cash. It is risky though, as you need to make sure the future operations of the properties will have a high enough net operating income to cover the debt service. With 100% leverage, you are going to have a high mortgage payment when combining the REFI loan with the bank and the seller financing amortization. This model will make it easy to test out different purchase prices and loan terms as well as expected future rental income / expenses to see what is feasible and at what point the project is not feasible.

The pro forma in this model goes out for a maximum of 10 years (select end month dynamically) and shows monthly and annual financial performance estimations. There are visualizations that make it easy to understand the scenario as well as a DCF Analysis (in case you don’t get full leverage).

For the pro forma forecast, the user can define the expected rental income of each property, the annual increase in rent, the start month of rent, the monthly expenses per property, other ancillary income, and vacancy rate. Additionally, there are inputs for exit cap rate, which will drive the exit proceeds based on NOI.

I also built in a sensitivity table that shows the resulting NPV based on sensitizing the vacancy rate and down payment rate.

This template is also included in two bundles:

All Models Bundle: https://www.efinancialmodels.com/downloads/all-my-financial-models-spreadsheets-templates-and-tools-120-421052/
Real Estate Models Bundle: https://www.efinancialmodels.com/downloads/real-estate-financial-model-bundle-58533/

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