Creative financing option

Member since 2024 · 1 post · 0 votes

We have an 8 bed 6 bath home in Houston that we renovated. We were approached with a creative financing offer and it sounds really shady. We are open to it being rented out or bought for an assisted living space. We just can not track down this investor and think they will leave us with a bankruptcy. We do not want to be a lender or have our name taken off the title unless they can pay the “due on sale” mortgage.
I don’t want to be convinced that the quick money will be better than waiting it out for an offer that makes more sense. We are new to creative financing, so any tips or advice or even pointing us to the right professionals would be great.

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Ellis San Jose

Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes

Amy,

You are smart to ask A LOT of questions about the borrower. Make sure the down payment is high enough to make sure the buyer/operator think's twice maybe 3 times about walking away.

I'm not an attorney so please consult one in your state to make your decisions.

You could propose they master lease the property as a trial period BEFORE you agree to purchase terms which would transfer title.

If there is an existing mortgage in your name it should be disclosed that your name will stay on the loan for possibly a very long time. You could negotiated a limited term where they MUST refinance & pay off the loan. Just weigh all the possible exit strategies. A ethical investor who discloses the pro's & con's of subject to transaction could be a win win for both. Just go in with both eyes open.

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Ellis San Jose
Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
2y
Amy,

You are smart to ask A LOT of questions about the borrower. Make sure the down payment is high enough to make sure the buyer/operator think's twice maybe 3 times about walking away.

I'm not an attorney so please consult one in your state to make your decisions.

You could propose they master lease the property as a trial period BEFORE you agree to purchase terms which would transfer title.

If there is an existing mortgage in your name it should be disclosed that your name will stay on the loan for possibly a very long time. You could negotiated a limited term where they MUST refinance & pay off the loan. Just weigh all the possible exit strategies. A ethical investor who discloses the pro's & con's of subject to transaction could be a win win for both. Just go in with both eyes open.
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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
2y
@Amy Crowther thanks for the post here.  This is a helpful website and we can tell it's your first post. Usually, we'd be really safe and happy with our responses for someone like you but I need to make this one be a little more firm if you don't mind - you are not to do anything that you don't understand.

I think this is a sale you are doing? As in, you have a property that you have for sale on the MLS? If that's not right, please let me know. We can't tell who the person is that's offering this to you. We also can't proof read any of their legal documents. I would say that you need to lean on your listing agent here - but usually, your listing agent is good at listing and selling properties. They usually aren't any good at vetting a seller financed transaction and representing your interests from a legal perspective.

It almost sounds like they are wanting a "wrap" mortgage? Texas recently passed state laws regarding those - and if you don't do it right, you lose the house and the debt entirely. Make sure you are only doing things that you 100% know how to do.

If you are in the Houston area I would highly encourage you to get plugged in to the real estate investor groups that are in that city.  They cover owner financing, creative financing, etc. on a regular basis. You can also take courses/classes on this subject...but it will take you a while to know and understand what the right process is.

Again, there are lots of details that we cannot see here.  Make sure you are only doing something you feel comfortable doing.  Trust your instincts...which are already telling you something. Listen to that voice.

Hope all of that make sense.
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Alex Hunt
Lender · Member since 2022 · 441 posts · 134 votes
2y
I would rent it out and then do a cashout refinance based on the new rental income, DSCR loan. You will still be on title, own it and hopefully have a decent profit each month!
Happy to chat further on this.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
You are under no obligation to continue the conversation.
Creative financing can be a good strategy, but it's an advanced strategy. I wouldn't recommend it unless you have a real expert on your side to protect you from the pitfalls.
Stick with what you know.
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