I have a rental I've owned for several years that recently and unexpectedly became vacant. I had some major under slab plumbing issues that needed to be fixed, plus the roof was overdue to be replaced, so I decided to go all in and renovate the entire house. I then put the house on the market with a FSBO sign out front and started getting several calls a day. Most of those calls asked about owner financing, and I finally told one caller that I would only consider it with 20% down (on a $140,000 price). To my surprise, the guy said yes, and then I immediately had to start figuring out what I was going to do...
The legal part I have figured pretty well, and I'm having a very knowledgeable attorney in Texas draw up the papers. What brings me here is wanting some opinions on what a reasonable price markup would be for doing the owner-financing, what most consider a reasonable down payment, and what's a reasonable interest rate in this situation...
I didn't mark up the property, though in hindsight I wish I had. I did, however, charge a flat $5,000 'closing fee' and I'm debating 6% for the note at 30 years. The underlying note is a 30 year note at 3.75%. I feel like this is reasonable, and is at a bit of a premium for the extra service I am providing. What does everyone think, too much, too little, or like the third bowl of porridge - just right?
Historically 10%-15% increase in price over the market is doable. The main thing on a wrap is to totally disclose to all parties the acceleration clause (read the note) in the underlying loan and determine up front who is responsible to refinance or pay off that loan should it be accelerated. If this is your only seller carry in 12 months and the buyer is a consumer you are exempt. You should hire a MLO to create a collateral file and underwrite the loan so it has full value should you want to sell it or borrow against it. All the regulations are in consumerfinance.gov.
Thanks for your input, I do appreciate the advice. I already shook on this deal so I'll take my lumps, but it's still a win for me - just sounds like it could have been a bit more lucrative. There's always the next one.