Looking to buy house and owner finance it out. Thoughts?

4 Replies

Wanting some advice from those here that are far more experienced than I am in this area. Here are the basic numbers. I could get the property for 105k. No repairs needed. Currently occupied with tenant paying 1050 a month. There is a family close to me that can not qualify for a loan currently. I would get 5k down from them, and we would sign a contract for them to purchase the house from me. I would do the financing for them. I was looking at an 8% interest only loan. They of course would be responsible for taxes, insurance, and all repairs. They can pay me extra and it would go towards principal, or they could pay the minimum and have no principal paid. I have my primary home paid off, and would be doing HELOC for these funds at around 4.5%. Sale price to them would be for 120k, and they would have 3 years to go through bank and refinance. Is this worth pursuing? I want to help them out, but I want it to make sense for me also. Is it foolish to tie up this money for so long? Are there any other benefits for me that I am not accounting for? Maybe tax benefits or profits from them making interest only payments? I see it as a good opportunity for them to get in a house that they would not be able to otherwise. They can avoid PMI this way and can build credit until they have reached the 80%. Would love to hear thoughts and feedback.

Putting them with the interest-only loan will take them forever to reach the 80% equity and I do not see how they will be able to get refi within 3 years. 

Howdy @John Parshall

I agree with @Simon W. . In order for them to refinance the property they will need to have a minimum of 20% equity built up. This would be based on a current appraisal to determine the FMV at the time of the Refinance. What is the current Value of the property? $120K? If it is determined to be $120K at Refinance, then, they will need to have $24K in equity. Since they are paying interest only there is no way they would have enough equity.

Why can’t they pay both P&I?  Or set it up with a 30 year amortization, negotiate monthly payment, and use a 10 year balloon payment.

They have the option to do interest only payments. Anything above that payment would go towards principal. I wouldnt want to tie that money up for long period of time, which is why I wanted the 3 yr max before they refinance. After talking it over with my accountant, I am not going to pursue this anyways. After we crunched the numbers, it would not be worth tying up that money when it could be used elsewhere. Thx for the responses