Carry the note
We are beginning the process of moving out of state. We are considering the possibility of carrying the note so that our current tenant can buy one of our rentals. We have no experience with this process. Can anyone direct us to a good resource? We have a good relationship with the tenant and want to give her the opportunity to stay in the home. Also...... we don't want to get into the San Diego tenant ordinances!
If you do decide to carry the note, I would most certainly look at current rates do make sure you're going a bit above them. There is an ap called "Mortgage News Daily" that gives you national average rates. Some people want to give incredibly low rates, but you don't want to get stuck carrying a note that yields too little. I'm not licensed in CA, but in most states you'll want a real estate attorney with experience in lending to draft the docs. Don't try to do it yourself. Personally, Think long and hard if you want to carry a note. That can lock up your cash for a very, very long time. Pricing it correctly will help with that.
Talk to a real estate attorney on how you want to set the sale up. Owner finance? Lease to own? etc... Is the property paid off? Is it going to be a wrap?
@Jason Howard Marden
We buy and sell notes for a living.
I never recommend an existing owner seller finance a deal if they are not experienced. A lot to digest but if they default then you are gonna have to get legal involved and foreclose and evict - which can be stressful and expensive
If the tenant cannot get conventional financing it means they are not qualified for a loan - so you take on that risk.
The only benefit is there is some potential deferred tax savings but that is not enough in my mind to say let’s seller finance
- Chris Seveney
Thanks for the input, Elliott. The property is paid off. We discussed the lease to own option but would prefer to carry the note for 3 to 5 years and then have the buyer switch to conventional financing.
@Jason Howard Marden
With seller financing to a owner occupant I believe a balloon cannot be shorter than 5 years.
Depending on the state you also May need to have the loan serviced by a licensed servicer.
- Chris Seveney
Thank you, Chris. That was the approach we were planning on. Am I able to demand a down payment as well? I'm not trying to be greedy, but I want to have some liquidity and I want the buyer / tenant to have considerable skin in the game.