Looking for a win-win solution here.
Okay so I used to be pretty smart. Or so I thought. But it's been a while since I've done anything remotely "active" in the property investment world. I have been renting out a few places as a sole proprietor that just about squeak by, loving the tax writeoffs. Until now.
Turns out that the roof on my SFR rental is done. Estimated costs about $10-15k. And I just don't have that kind of scratch laying about (and oh yes, a baby on the way).
So whilst I've always loved the house, but I'm thinking it is time to sell. I owe about $125k, and in it's condition (dated features, need for repairs) that's just about what it's worth, add in any closing fees and it's a wash. ARV according to the comps my property manager pulled it might go for $150-155k.
The new tenant which my prop manager just put in, wants to buy the place. He's a renovator from Cali, likes the place for his own residence. But has got some interesting terms, which are throwing me for a loop. So I'm looking for a little Bigger Pockets community insight:
(I'm using "quotes" where I'm pulling directly from his email so to all you helpful readers out there that means that's his wording, I've got no more details than that. But I would love your insight.)
- "As Is, Where Is" a sale price of $130k with owner financing. "As mortgagee, I expect that the owner, as mortgagor, will hold the property title and will issue a deed of trust."
- Down Payment of $5,000. Due before signing on Friday, April 8th (yeah that's not happening.)
- "Will pay for all repairs/maintenance, owner/mortgagor is released from all liability w/o warranty. No home inspection appraisal required."
- Wants to do a "7 year @ 7% Fixed APR interest, until refinancing." No prepayment penalty.
- According to his math, with annual property tax that payment comes to "$2236.59/mo." (my math put's the figure about 30 bucks less, but I'm only so good with a spreadsheet.) Which is about a grand more than I usually get for rent, which makes me think yippie, yippie, but also makes me skeptical.
- "Mortgagee will get property insurance and a home warranty."
- "24 months or less is target for refi" however added, "We would like to request a caveat, 'in the unlikely event' that as mortgagees we are unable to refinance within 24 months or less, then the mortgagor agrees to annual extensions even upwards to the full seven years term."
- Seller takes care of closing costs and fees.
Okay so that's what I'm looking at. To me it seems overly complex, and frankly, I think issuing a deed of trust would trigger a due-on-sale clause. Am I right? Or is this a wrap-around mortgage (if thats the term). It also seems pretty quickly forced, which leaves a bad taste in my mouth, you know rushing into something you don't quite understand—I hear that's not always a good strategy. He and I have been going back and forth for a bit through my property manager/agent, so if I were him, I know I'd opt to pay as few rent payments as possible.
I like the idea of coming up with a win-win solution here. But by all means if any of you guys smells a giant rat, let me know! I mean let me know why too that'd be great.
For those playing at home, try running your numbers. My powers of spreadsheet skill say, at 2 years he'd owe me $95k remaining principle, and will have paid me more than $29k, which minus my loan nets about $13k. Makes it seem like I'm coming up roses, and even more so triggers the spidey sense.