Rental Property Investor · Erin, NY · Member since 2016 · 130 posts · 32 votes
I rarely open the auto forward emails I get from MLS criteria I setup with RE brokers. Opened this one on Tuesday and saw a house for sale, built in 1997, 5 Acres partially zoned agricultural, 3 bed, 2 Bath, New Pool, two nice decks, beautiful view of the hills, $50,000
I jumped on it and made a cash offer of $51,000. Had to be cash because seller would otherwise lose the house to foreclosure. Offer is accepted. The RE broker has a conventional buyer at $70,000. Should I just take that and walk away with $8,000 to $9,000 profit after closing costs, broker fee, income taxes, etc. or should I try to owner finance at an $80,000 sale price which would net me about $5,000 a year plus their down payment? The Fair market value of the house is $85,000.
I know owner finance may be more work, but I would probably make 3 or 4 times what I would if I just sell it right now. I have never owner financed something to someone before.
Both great options. Personally I am more of a "short term sacrifice for long term gain" type of guy, so I would seller finance it personally. Unless you need the cash now. If you do then maybe sell it. If you do finance it, then need the cash later, you can always sell the note on something like FCI Exchange.
Personally I think financing it is the way to go but you are talking to a buy and hold investor. A flipper or the like would probably tell you to sell and then keep rolling your profits into more deals.
A quick $9k is a sweet deal for not doing any work and the large amount of land and pool seem like it could potentially be a deferred maintenance nightmare.
@Aaron Vergason, congratulations!!! That is an awesome deal.
Both options sound great but let's just break down the reality.
The conventional buyer is probably not going to go for an owner financed option when they qualify conventionally.
That said, if you choose to go with an owner financed option with another buyer I do not see why you can't have your cake and eat it too. If the ARV is $85,000 you should be getting $8500-$17,000 down up front. Additionally, you should only accept full market value. If you are charging 6.9% (standard for an owner financed home) you will have an income of roughly $5800 per year not including escrows. The buyer should pay the tax and insurance but through monthly payments that you hold and use to pay out, hence escrows.
If you have not already purchased the property, and you want to take the offer for $70,000 you can see if your attorney is familiar with a simultaneous closing and never even touch your money.
Charity, I got screwed out of the deal. An agent saw this house hit the market and immediately come off the market because of my accepted offer. She got the seller to take the purchase agreement to a lawyer who wrote the letter to let her out of the deal (Within 3 days.) Apparently this is a standard clause at least in NY. That agent brought a deal 9k higher than mine and now has MY deal. I don't know how I could have done anything differently. I was prepared to close as fast as they could. This just happened in the last 2 hours and I'm not happy. I was prepared to make a great return!
@Charity Woods What could I have done to make sure this didn't happen?
I had a signed offer and I put up the good faith/ down payment. both parties signed.
@Aaron Vergason , unfortunately nothing. That is considered poor practice by realtors across the board but is not illegal. I had this happen in NJ back in April. The best rule of thumb is that a deal isn't done until cash is in your hand.
Sorry to hear about that though. It is always disappointing. You'll get the nest one.