Owner Financing Plan- Please advice!

5 Replies

Need advice as to how and why to sell this property by owner financing. I own this property for over 14 yrs. Bought with my IRA money in custodian. It has been used for Group home and it has been rented to group home operators, averaged 3-4 yrs at a time. The current tenant/operator (two women) signed a 5 yrs lease 6 months ago. The rent is $2500 + N. Tenant maintains the interior and lawn. Landlord the structure (roof and foundation). The neighborhood property price has gone up in recent years for about 30% and I am thinking about selling it on the market to investors (8.87% cap) but first I like to present it to the tenant/operator and offer owner financing and carry a note. There is no agent involved. I have done a couple of owner financing in the past and carried notes 5 yrs ago. have some experience. but not the dot frank law. I have no need of money so I am happy to carry for 3 yrs. They were interested but I have not presented the terms. Here are my planned terms. Selling price $279 900, 8% interest rate, 30 yr amort, 3 yr balloon at 10% down? The loan at 90% is $251.910, monthly at 8% is $1848.43. Property Tax is $337.5/m Insurance is $108.33/m total comes to $2294.26. That's buyer's monthly cost to own the property with owner financing which is lower than their monthly rent. .


 On top of that they will accumulate equity about $200/m in the first three years.  Their gain is my loss. I will have less income $426/m with owner financing during the three years of carrying it.

Do I really want to sell at this time? I am not sure. The only reason I can come up with is that I am planning to retire in 3 yrs. Thinking why not sell it now. On the other hand, this is a commercial lease and tenant is responsible for maintenance. I really should not need to worry about hang around being a landlord and I should wait for end of lease to sell and enjoy the cash flow for the time being.

Tenant has been planning to install fire system and sprinkler system which will cost them $30,000. Even when they know they can't take with them after 5 yrs. the lease didn't prohibit landlord selling the property during the 5 yrs. Lease doesn't guarantee it will be sold to tenant. Lease gave the tenant first rights of refusal to buy.

I based my selling price at 8.87% cap I think that is an attractive ROI at $279,900.

The property was built in 1984 and is in good condition interior and exterior. Roof and two ACs were 6 yrs old. foundation is sound and it's a brick house in a quiet neighborhood. The house has been a group home since it's been built.

Do I want to provide a COMP of the neighboring similar properties for investor or for my tenant? This is really unique situation, the residential properties near by has different use, therefore not good for comparables. or do I let them do their market research any way? Do I want to give them 2 weeks or one month to make decision before I put it on the market? Right now it is a good summer season to sell. 

Do I want to provide a COMP of the neighboring similar properties for investor or for my tenant? This is really unique situation, the residential properties near by has different use, therefore not good for comparables. or do I let them do their market research any way? Do I want to give them 2 weeks or one month to make decision before I put it on the market?

 I am not sure if they can come up with 10% down payment right a way especially they may need reserve money to install fire alarm equipment and fixture in the property for patients safety and code compliance in the next 3 months. They pay rent on time. Do I want to accept less than 10% down or how do I handle if they bark at 8% interest rate? If I accept lower than 10% down? Do I give them the title ? Do I offer 3 yr or 5 yr balloon? If 5 yr balloon can I stipulate increase rate 1% on the 4th year?


They have average credit scores. But they are hard working determined business women and they pay rent on time. Right now it is a good summer season to sell. Do I want to close at the title company or do I hire an attorney to draw up paper work. I don't plan on purchasing title insurance for the buyer. I will provide title report. Can you give me advice on how to sell/negotiate/present this property to my tenant/operator or Investors on the market? -Grace B. Dallas, TX

@Grace B. Sounds like a good plan. I have a second home that’s free and clear. I am considering a similar offer. I think it will also allow me to get a higher price and offset my capital gain over time. I may try to push the down payment a little higher to pay off another rental property to improve cash flow on 2 sides

You should be good on Dodd Frank/SAFE.  Only 1 sale in a year would be exempt and if considered a commercial property sale you are also exempt (these regulations really focus on sales to individuals for their personal home.

You don't sound super motivated so I'd let the buyers do their own due diligence - as previously mentioned.

Sales Price, Interest Rate and Down Payment terms all work together so if they need flexibility on, say for example the downpayment, you can then up the interest rate or go to 20yr amortization.   I generally don't like to go less than $10K-$20K on a downpayment to be sure the buyer has skin in the game.

I ABSOLUTELY recommend you work with a Real Estate Lawyer and/or Title company on deeds, promissory notes, deed of trust etc... to make sure everything is drawn up correctly and filed correctly.

Wow, what a group effort here. I love the input. keep coming.  I will keep everyone updated as this progress.  I would like to hire a note buyer who knows the necessary documents and terms needed incorporated into the document for smooth resell of the note.