Owner Carry-back: AITD Or "Subject To"
I am selling my "2 on 1" (2 homes on one lot) in CA. I want to carry back for 2 years, as I am moving to NYC & need an income stream for rent until I am ready to buy. The property is worth $525K, a HELOC of 50K (gets paid at sale) & a 1st TD of $123K (at 5.5%)are the liens. My question is:
1. Should I sell it using AITD or "Subject to" ?
I know the AITD would net me more $$$, but my fear is the risk of the Lender calling the note. What happens then? Who pays it off? Will my credit be ruined?
Also, in this market where interest rates are so low, what benefits to the Buyer would there be for owner carry back?
2. What rates would make sense for me & the Buyer?
3. When Balloon is due, who pays off the 1st TD?
Thanks everyone!
If you've got additional equity that you're financing, I'd use an AITD (All Inclusive Trust Deed). If they're just making your payment, use sub. to.
With the AITD, you can just set it up so that they pay you and you pay your lender. Additionally, they don't really care where the money comes from. People, who aren't on the mortgage, make payments all the time. Friends, family, relatives, etc.
If the buyer doesn't pay you, and you therefore can't pay your note, then yes that will damage your credit.
Benefits to buyer for seller finance: Quick close, saves hours of preparing docs, finding 3 years of tax statements, proving income, etc. Additionally you probably won't (but could) charge him a point or two to close as well as all of the other fees that come along with it. Realize that you're doing him a big favor. You may want to pack it and add in an extra interest point to make it a bit better for you.
Rates: make sure it covers your payment, and anything above that that you can get is gravy. Welcome to capitalism.
When the balloon is due, he will probably refinance and go through escrow. At his loan close they would pay off the first TD with the loan proceeds.
Thanks for your help.
I ~will~ have additional equity. So, with the above property, the AITD would be 374,500K ($26,250 down & 124K 1st TD).
I would carry it back at 7.5% for 2 years, interest only ($2342.19/month).At end of year 2, the 374,500 would be owed to me minus the 124K (which would be paid off at refinancing, right?)
Should I carry longer? What do you think of 7.5%?
I would use AITD at 9% interest. Seller finance carries a premium interest rate in the market and the 7.5% you are proposing is right in the market for the type of buyer who needs to buy on terms.
I would NOT sell sub2 in my opinion because you stay liable for the loan and you are NOT in control of the property. This is a good option for modivated sellers with no other options but not for someone who is not modivated and has so much equity.
Just my 2 cents...
AITD it is.
I doubt that I could get 9% from someone I deem credit worthy enough, &, I would be happy w/7.5%.
Now I got to look into the possibility of perhaps doing a 1031 Exchange with 50% of the proceeds to defer my gain. Any suggestions on that?
Thanks for your help.