Owner Financing to Owner Financing - Head Spinning

Buying & Selling Real Estate
7yFollow

Owner Financing to Owner Financing - Head Spinning

Ryan Pozzi
Lincoln, NE · Member since 2019 · 19 posts · 21 votes

Hey BP fam!  I'm trying to put a deal together that I hope looks simpler to y'all than it does to me.  I keep trying to put pen to paper and figure out both sides of the equation and I keep ending up frustrated.  Here's the deal:

My JV partner and I have been managing a property whose owner now wants to sell it to us. She's agreed to a great sale price - just over 70% of its appraised value in a warmer than average market - but she insists on owner financing. I don't have a problem with that, but we were interested in acquiring the property specifically so we could write a lease option contract or something similar with the current long-term tenants, who have had trouble qualifying for financing but who want to buy the property. Those tenants have agreed to buy at 100% of appraised value if we can be more flexible about the time frame of their eventual purchase. She (the current owner) agreed to sell to us instead and let us deal with them because we can deliver a down payment immediately and she wants to move on to a new town ASAP.

It's possible I'm just not getting my head around it, but all those conditions make it sound like this deal is basically-

She owner finances to us while we owner finance to them and I can't figure out how to structure that so that everybody (I mean especially us, but still everybody) wins.

Please take pity on my poor tired brain.  Don't want to freeload.  Would be happy to stuff envelopes or do a little bit of whatever remote work I could do for your business in return.

Thanks, BP!

-Ryan

0Reply
49 views

3 Replies

Jump to latestLatest
  • Dan Bryskin
    Investor · Minneapolis, MN · Member since 2015 · 252 posts · 263 votes
    7y

    @Ryan Pozzi, not sure whats the question here:) Sounds like a perfect deal to me. Buy it with say 10 year balloon on money mortgage, write it so terms permit a wrap around contract. Sell it with 5 years balloon on contract for deed.  Take more for the down payment then you are going to pay, add 1-2% interest spread on the sell  side ... And if you are bored - bring me one or two of them sweet deals :)  

    1. Money mortgage (preferred way for the buyer). You are the owner of the property and the other party acts as a bank. Standard foreclosure laws and protections apply. If you choose this rote, use the title company. They can help you in creating and recording money mortgage.

    2. Contract for deed (preferred way for the seller). Seller remains the property owner until the contract is fully executed (last payment is made), buyer has benefits of ownership, but if something goes wrong, it's a contract termination not foreclosure. In my state forms are available from secretary of state, or use a real estate attorney. Make sure your contract is properly recorded with the state or you may face a fine.

    Good luck.

    1Reply
  • Jeff StephensPro Member
    Rental Property Investor · Portland, OR · Member since 2017 · 101 posts · 78 votes
    7y

    I agree with @Dan Bryskin, this sounds like it has the makings of an excellent deal. You get the opportunity to arbitrage BOTH the price of the property (buy it for 70 cents on dollar and sell it for 100 cents on the dollar), AND the financing itself. 

    The only thing I wanted to point out is that another slight variation is you could "sell" it to your long term tenants without "selling" it at all, if you used a tool like a lease-option. That would give the tenant a path to ownership but further protects you because the tenant must follow the terms of their lease to maintain their option in good standing.  

    Furthermore (not to make this too complicated), if you're making money each month on arbitraging the financing (the tenant's lease option payment is more than your mortgage payment), you may actually want to make sure the tenant does NOT cash you out too early. After all, that would put an end to your cash flow arbitrage party! So you could set the tenant's window of time to exercise their option as being several years out (for instance, they could exercise their option between the 7th year and the 8th year), so that you'd enjoy that great financing arbitrage for at least 7 years. 

    [email protected]
    1Reply
  • Ryan Pozzi
    OP
    Lincoln, NE · Member since 2019 · 19 posts · 21 votes
    7y

    Thanks, guys.  I *think* we've gotten everything on track now.  The lease option buyers are grumbling about the down payment, but they love the home and want to own it so I believe they'll work it out.  If not, buy and hold isn't the worst secondary strategy for us.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free