I built up my rental portfolio over the past few years and am now looking to sell it. I built it in blue collar neighborhoods and the management process is not something I am interested in participating in anymore. I realize that because of the location of the properties, I will probably have to hold some of the paper if I want to sell as a package
I have begun discussions with an interested buyer who is questioning what equity he would receive, if he is responsible for maintenance/repairs, if the sale does not ultimately happen. He offered for major repairs (roofing, windows, etc.) to have the out of pocket expenses split between me and him or to have the payments credited towards a portion of the principal.
To me, I believe I should respond that he is effectively the owner of the properties and will receive the deed after he satisfies the balloon payment. It would be no different than if he purchased the properties from a seller using a bank loan, whereby the bank would not credit a major repair towards principal.
For others who have sold properties or portfolios with owner financing in place, is it common to offer portions of equity or principal credit for major repairs?
I've bought quite a few properties using seller financing and have always looked from the same point of view as you do. From day one, they're mine just as if I'd paid cash.
It sounds like you are not going true owner financing but a land contract instead.
In a land contract the buyer doesn't have control. A property needing repairs this is a big problem. You could pour all this money in and not see a return on your investment.
It sounds like you want to dump this off and not manage it anymore which is typical of these types of properties.
Buyers always get excited when owner finance is mentioned but they do not focus on the details. Many times owner finance is not a good deal for a buyer.
I would list in detail how many properties, rent per property and unit mix, and amount wanted. This might have to go in marketplace later on if you put it out as an offering.
I agree with you @Sean H. . A sale is a sale and the buyer is now 100% responsible for everything with the property. But this phrase is interesting:
if the sale does not ultimately happen
Why does that come into play? With an actual sale like a seller carried mortgage or a contract for deed, there is no question about whether or not the sale will happen. It already has. The only question is whether or not the buyer/borrower will default and you will have to foreclose. This statement makes me wonder if you are doing some sort of lease/option or master lease option. With those there is no sale until the option is exercised. And in that case the option agreement would outline all responsibilities. And it may well be that you (the landlord/owner) may still have some responsibilities for the property.
He may be thinking this is a land contract /master lease because one of the units is in need of a rehab before it will be rent-ready. Would this have any bearing on whether I should be offering holding paper vs lease/land contract?
I tried to be careful to word the thread as seeking advice for a potential deal from a sellers perspective, not as an offering. If this falls through and I do decide to advertise as an offering, I will create a separate thread in the marketplace with deal particulars.
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