Seller Financing on Owner Occupant house

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  • I have an issue that I would like to ask other forum members about:

    basic situation: my father has health issues and has been placed into senior citizens home/assisted living. We’re needing to liquidate current real estate assets in order to pay off debt and rid ourselves of this townhome (HOA covenants prohibit from being rented to a tenant).

    There is a secured line of credit against a second residence my father took out several years ago that is fully invested in multifamily notes. Security on the notes is good but they cannot be pledged or sold for other collateral. The townhome is owned free and clear but purchased in 2006 at the top of the market. I have been tasked with getting this townhome on the market and selling it for a ‘good price”. Agent thinks target number is doable but on the high side.

    My question is this: the only thing that really needs to get paid down is the line of credit which amortizes in November at LIBOR +1. It’s not a crisis situation since their budget can handle the amortization but it would be better to pay down the LOC and have some extra liquidity to rollover into SFR eventually.

    Last time the house was put on market it did not sell. Since it is owned free and clear, I’m trying to think of ways to do owner financing and encourage buyers to purchase on a seller carry back deal. In an ideal world, we would receive the amount needed to pay down the LOC and then finance the remainder of the purchase price at an attractive interest rate for all parties and have a note for the remainder.

    As I said before, the problem is that any purchaser of the townhome will have to use it as a residence/owner occupancy since there is no subleasing in the townhome community. I’ve experience in buying/selling rentals but don’t have any experience with selling non-investment property to an owner occupant. I’m going to use a realtor to show the house but would like to be involved in a kitchen table negotiation to try and see if I can get a buyer interested with some sort of owner financing if the purchase price is too high and there are no buyers.

    Any thoughts on how to structure this deal or am I making it too complicated?

    I don’t quite understand the situation with the notes and the other residents what actually is the question there or the situation what the sale of the Town how should be relatively easy with offering owner carry back financing just take fair market value plus maybe 5% and use that as your sales price get as much as you can as down payment then structure the rest with terms agreeable to both parties if there’s not enough money out of the down payment you could always sell off some of the first payments for cash

    Jeff, three issues:

    1. This sounds like a hurray-up house sale if at all possible. I understand the need to strengthen the family financial ASAP. There’s another issue as well. There are a lot of signs that the same kind of housing bubble that fell apart just after your father’s purchase is about to happen again, and in a much bigger way. So that adds to the urgency of selling at whatever is the best possible price now.

    2. I don’t know what state this house is in, or what, if any, usury laws might be in place. What that matters is that the actual inflation (and for many years now) is much higher than the bogus 2% or so that the federal BLS (Bureau of Labor Statistics (or lies & scams, as some phrase it) is obligated to report. Compare their rate to the actual inflation numbers that

    has been reliably reporting for all the major cities in the US for many years. Those actual rates, close to wherever your father’s house is, will do a far better job of telling you what the bare minimum BREAK-EVEN interest rate might need to be if you structure a seller financing arrangement — and this is BEFORE considering any tax effects on that interest money, or any legitimate profit on that loan that the seller is entitled to. Sometimes, if a state has usury laws that severely limit the size of the interest rate, it may be impossible to structure an interest rate to cover all three costs above — the actual inflation (never figured into any state laws), any tax effects (whether state or federal), and any profit to the owner. Happily, I don’t know what state is involved here, so I can plead total ignorance of the relevant numbers.

    3. There are different ways to handle a house sale. The slowest possible method is the long dragged out Dutch auction method that realtors have used “forever” because usually they don’t know any other. That method sets an initially high price, like fishbait, and then waits for nibbles. If there are none, then the realtor might needle the seller a bit for an OK to drop the price “somewhat”, and wait some more. Rinse and repeat, etc…. You’ve seen this process already fail, as often happens. In the Netherlands where this process is used daily to sell aircraft loads of flowers, the entire process happens where the bidders watch a backwards running bid counter on the wall — all in ONE MINUTE. Contrast that with realtors taking 6 months with that same process, and often failing. (They don’t appreciate this comparison, BTW.)

    A second way is to hire a state-licensed auctioneer, who will take a commission, but who is responsible for all advertising, publicity, etc, and who usually conducts an open outcry auction in person on the property grounds. Because of the open outcry method, virtually all states get their licensing fee cut from such auctioneers. It really helps to shop for the local auctioneer who has the best reputation in the property’s area. I did this a long time ago with a house and farmland combo, after realtors proved utterly unable — many years before CashFlowDepot was created.

    A third way, that many here on CashFlowDepot practice, is called an HBS, or Highest Bidder Sale. It uses similar advertising and publicity methods that an auctioneer would, but the open house system is a little more refined, after which bidding is conducted over the phone on a Sunday evening. There are enough legal differences so that this process doesn’t fall under the state auctioneer licensing rules. It is a process that began with the editions 1, 2 & 3 of Bill Effros’ old book titled “How to Sell Your Home in 5 Days,” except that Jackie Lange took those ideas and over many years of experience has refined them greatly. The odds are that if you make an appeal here on CFD and mention the city where the seller’s house is, you may well find somebody who lives close enough to be able to manage the HBS process for you. And it is lightning quick.

    Have I given you some relevant issues to think over?

    I wish you and your father the best.



    Don: the notes don’t have anything to do with the deal. I was thinking out loud and basically reminding myself that even this line of credit is invested and will achieve some sort of return on the debt. Thank you for your thoughts on structuring the deal. I guess it does come down to the interest rate/down payment in terms of getting a good deal in place. As this is not my house, I just want to get this problem off my plate while at the same time not leaving any money on the table.

    I couldn’t agree with you more about #1. I want to get this thing gone ASAP before we lose the opportunity to get any money out of it. My parents did not buy this townhome as an investment and was in too much of a “keeping up with the Joneses” community for my tastes. However, not my purchase but it is my problem. I appreciate the link you put in for#2 because determining the interest rate is going to be the challenge should I get an offer for owner financing. I like the idea of what you mentioned in#3 but I’m not sure if this would be the best property to attempt that approach, since this is going to appeal to a luxury demographic within the city (Atlanta). Still, a good arrow to have in the quiver.

    Thanks to both of you giving your thoughts!

    Jeff, it’s probably worth mentioning that your problem house has another kind of lesson for the unwary. The HOA’s prohibition on sub-leasing is a red flag to many investors — who want no part whatsoever in a house deal under HOA control. And about 20% of the US population lives under such dictatorship.

    That house might possibly have made a great Airbnb property, with excellent profitability for the right investor, but alas….



    Ditch the real estate agent. You do not need them.

    If you advertise on craigslist that this house is being sold with seller financing to the highest down payment, you can get it sold in a weekend. You should establish a sales price (at or a little above market value), then offer a graduated scale for an interest rate based on what the down is.

    10% down = ___%
    15% down = ___%
    20% down = ___%

    you will likely get 20-30% down. Will that be enough?

    Tell me he market value of the property and I can give you more details.

    Of course you will also want to check their credit, get a credit application and verify references.

    Instead of the real estate agent, you could use a mortgage broker to pull credit, etc.

    To do a Highest Bidder Sale, you should:
    do at lest 7 days of aggressive marketing.
    then do a 2 day open house for only 3-4 hours each day
    accept open bids on the property during the open house
    then call all bidders to see if they want to increase their bid for a down payment
    sell to the person who has the highest down payment & and best credit/income situation.

    There are more details and all the paperwork you need in the Highest Bidder Sale Guide book at

    Highest Bidder Sale: The Smart Way to Buy or Sell Your House

    Sorry for the late reply to the the contributors here. I’ve been traveling.

    Dee: yes, I agree the HOA provisions are ludicrous. There is no way I would have purchased this house to begin with but the HOA covenants are why I want to get rid of it as quickly as possible. Of course, if you could sublease, I would not be selling!

    Jackie: great idea on the auction strategy. I might be stuck with having to use a realtor but if she can’t fetch the price we need, this is going to be plan B.

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