Owner Financing - how to sell the note

4 Replies

Our family has rental properties,  we are selling this rental property to the tenant.  This weekend we signed a draft with tenant/buyer that we agreed to sell at $290,000, $20,000 down, 8.25%, 30 yrs amort, 5 yrs balloon. Tenant has been renting for 1 yr now and has been paying rent on time, kept house in good condition (I am lucky). The new monthly will be a little less than current rent. They are aware we will sell the note. 

The tenant/buyer are a couple, the husband has credit score of 680 (accordingly, the tenant will provide me a 1003 loan application form filled) We have not sign any formal document (promissory note, deed etc) yet. I am looking for 1. advice of put together the contract and supporting document in preparation of selling the note before or after  closing the transaction 2. find a note buyer, property is 10 miles east of Downtown Dallas off I-30.  

In addition, we (my family) have a few questions: 

1. Do we need to transfer title to the tenant at closing? or is it better to do Lease Purchase for the time being till we have a suitable note buyer?   The property is in Texas. 

2. If tenant/buyer do buy title insurance, should title company leaves it open till we find a suitable note buyer so tenant/buyers don't pay twice? in two transactions?  

3. Which of the two,  5 yr balloon or 10 yr balloon is preferred?( with no pre-pay penalty) when selling notes.

Anything else do we need to be aware of during this time, going into the closing?

Why are you carrying back a note on this. Much easier and better deal for tenant to get an FHA loan.

You are going to sell the note in what seems a short time and with no seasoning you are going to get a hair cut.

Tenant has 680 with almost 10% down should be able to get a loan around 5% and you get full amount with no discounting.

@Grace B.

Agree with just selling it outright for s lower price will net you more than the discount on the note you’ll take.

FYI, the buyer’s title insurance is not affected by you selling the note.

Where are you going with your cash?  What is the tax gonna be when you dispose?   Calculating your tax has many variables.  How long you've owned, what you paid, capital improvements, your tax bracket, etc. play into to it.  Get a number from CPA.

If you are buying something else, you may do well trading the created note a face with out a discount.  If this is the case, you'll need to trade property first and have your buyer take back the note.   Going from real estate to note is taxable.  Going from real estate to real estate, when structured correctly, can avoid tax.  Always get CPA to approve transaction.