I’m currently renting 1 side of a duplex that is owned by a 70+ year old single woman. She bought this place back in the 80’s as a rental investment. My wife and I are in escrow on our first house so we’re moving out and during a discussion with her yesterday, I realized she doesn’t know what to do with this duplex. She also doesn’t want to deal with tenants anymore. She’s had some really bad experiences in the past with tenants fighting and now that I’m leaving, she’s going to have to risk those same experiences. I have been here for 7 years and she loved me as a tenant.
So here is my question, what are some strategies from others BiggerPockets members that have used owner financing to help an owner like this get money for their property, never deal with a tenants again and allow me to get ownership of this house!!! She’s an amazing lady and I want to help her get the money she deserves from this duplex (it’s worth ~$1.5M in Newport Beach,CA) but never deal with being a landlord again. I’m only assuming owner financing is the best approach from listening to so many BiggerPockets podcasts but I’m open to better creative options. Thank you very much in advance for any help I can get.
This is a perfect opportunity for owner financing that can be a win/win for both of you. I would start by determining what each unit would rent for and reverse engineer to figure out what you can realistically purchase the property for. Good thing for you is that you know how much you have paid for the past 7 years and you know the area well.
Questions to consider:
- The units probably need to updated... you should get quotes on how much $ that will amount to.
- What will they rent for after they are updated?
- Do you have capital provide her with a down payment or are you trying to put 0% down?
- Have you asked her what price she has in mind?
- What amount of money does she need per month to be equivalent to what she is currently receiving?
Here's a good article that has a lot of detail on Seller Financing
@Colton Fairchild thank you. Have you put together one of these deals before? I do know what I would do to get the most rental income, how much it would cost and what I could get as rent. I’m going to read the article as soon as I get home as I’m sure it answers a lot of questions.
What interest rate do you typically give the seller?
How do you transfer title in CA? I’m sure the government wants their piece via tax so do we record the sale as a $1 sale?
I don’t have capital to put down since I just purchased a home. I actually close escrow later this month. It will have to be a 0% down scenario.
Thanks for the help.
Yes I have. The rate is completely up to you and her. Since you are not putting money down she might want a higher rate. Anything from 3 - 6% is reasonable in my opinion... just have to run your projections at various rates and see what you can do. If she is more focused on getting a higher purchase price and doesn't care too much about the rate then this can also be an opportunity worth evaluating.
I can't really speak to how to do that in CA but in TX we just have a local title company facilitate the title transfer.
Also, you'll have to figure out the length of the financing. If she is 70+ she most likely does not want to deal with this for the next 30 years. You could always keep it as 30 year amortization but have a balloon payment at year 10. This way she only has to think about it for 10 more years...