Real Estate Investor · Sioux Falls, SD · Member since 2015 · 25 posts · 6 votes
I am considering selling a property I own using seller financing. My thought was to require 10% to 20% down, charge between 6% and 7% interest, set the payments as if it was a thirty year loan but require a balloon payment of the remaining balance at the end of 10 years. I would appreciate thoughts on how I should structure it, ideas on what to watch out for and how I should word the contract to protect me should the buyer miss a payment, etc. If anyone has good or bad experiences with this type of sale, what was good about it, or what went wrong? The reason for the 10 year balloon is I figured that would be about the time I would be starting to sell off rental properties anyway.
For added information, the current tenants approached me to buy the place. It has a current market value of around $220k and I owe about $90k. Monthly rental income is $1450 and the current mortgage payment is $600 a month.
Buyers who can put 10-20% down are likely to qualify for conventional financing which these days is way more beneficial than 6%-7%. Of course, there are those who a credit challenged but is that really the group of buyers you want to pick from?
10 years is a pretty long time for a balloon. A lot can go wrong in that time period. I would consider shortening the balloon to 5 years (still on a 30 year amortization).
You did not identify your other expenses other than mortgage cost but it appears the property is throwing off some cash. At 6% with 30 year amortization you will be receiving about $1,320 in cash - less than rent but you benefit from shifting to the buyer the cost of taxes, insurance and repairs. Does the math work for you?