Seller Financing
I have a house which an individual would like to purchase with seller financing. She would then like to put a renter in there.
The house needs 2k in repairs but can be done with tennant living there.
My quesiton is what type of scanario would be best for me and what should I do with contracts etc? The house is being sold for 75k. I would be holding a lein, but what interest should I charge and for how long?
Any help is appreciated.
You need to give a little more info. How much do you owe on the house? What are the length and terms of the note you will be holding? Will there be a balloon payment? What do you need/want from holding this note for her?
I owe 69k on the house. I am open to all options. My rate is 6% on the house.
What interest rate might you suggest? Is a balloon better than not?
I am trying to get a passive income without worrying about renters etc. I know my check is coming from the buyer. If she defaults I still have a great property with more equity in it.
So you'll be holding a note for 6K? At 10% for 5 yrs you would get 127.48/month or a total of 7648.80 over the life of the loan.
Me I would amortize at 10% over 5 years interest only but include a balloon at the end of 3 years for the 6k. In this way you will get 60.00 each month for 3 years and then your 6 thousand back.
What are your payments, vs what she can afford to pay and still make money as a landlord. Too many fingers in the pie for me. She could force you to foreclose whilke she is still collecting rent. Didn't say she would, but she could. I would do a 30 yeard amortization at 9.95% with a baloon payment (force her to refi or give you a chance to adjust the rate... they will be higher in 5 years) due in 5 years.
Good Luck,
Shawn(OH)
If you sell for $75K, at 9%, that is $603/month PI. That's $190/month profit to you, based on your $413 payment. Pretty good.
Assuming your taxes and insurance are $100/month, that is a payment to you of $703. Add in the buyer's spread on the rent and you get monthly rent of $800+. Will your house support that? If not, you may not get it rented and your buyer may not pay. Then you have to foreclose, etc. That can be a pain and costly.
If you do sell, I'd recommend a balloon in no more than 2-3 years. That way you get cashed out. Otherwise, you get no appreciation and no tax deductions, just monthly income and the potential for someone to trash your asset and stop making payments.
Or, you may want to rent it out yourself. At $800 in rent, you'll make a little money per month, plus get passive losses on your taxes by writing off all the management, maintenance, and depreciation.
You could also sell it to an end-user yourself, on a L/O or CFD. It depends on your situation and what you feel comfortable with.
Good luck.
-Peter
I am not sure that the deal is all that good for the seller.
If you do go for the deal and take a second, a balloon will make the 2nd less valuable if you want to sell the note. I buy notes and balloons are not great if the borrower has trouble refinancing.
If you are going to offer a second, get a credit application on the buyer. You will need this later if you sell the note.
You could wrap the first and earn a better return. I am guessing the buyer is not going to assume the first and remove you from the liability.
John
I would not carry a second unless I could afford to lose it. It is basically unsaleable and difficult to collect upon. However, I like a longer ballon period because I collect more interes income. Do the calculation of 36 payments interest income plus payoff, and a 5 year and see which nets more to the seller.
It alson gives me a longer time to see if I want to make any further offer to refinance.
Good Luck,
Shawn(OH)