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Hello everyone.
I will lay out some details and will follow up with a few questions.
Property: Single family home in a very desirable area
Value: $360,000.00
Debt: $240,000.00
Interest rate: 2.75%
Monthly payment: $1,382.63 (principle: $514.13 Interest: $550.52 Escrow: $317.98)
Insurance: $1,245.00
Taxes:$2,829.00Rental details:
Tenant payment: $2000
Very rarely do we have to put money into the home. Its a recent rehab with everything new. Average of $150-$600 a year of repair maintenance.Problem:
How can we access the $100k of equity in this home and continue to collect rent payments.My solution:
seller finance this transaction with current tenant.Potential deal structure:
Sales price: $360,000.00
Down Payment: $100,000.00
Seller finance interest rate: 5%
Terms: 15 years
Monthly Payment: $2056.00Conclusion:
By setting up this transaction this way, I am able to pull the $100k equity out of the home and continue to collect the same amount of monthly income from the tenant (now new owner) as I currently getting which is netting around $600 per month for the next 15 years. since I am still the owner I can continue to benefit from all the write offs, deductions etc.Couple of questions:
1. Should I continue to pay property taxes and home insurance or have buyer pay those things.
2. If the buyer does pay those thing, should they pay my bills or should I have buyer put those things in their name?
3. I still have a mortgage on this property (see above) does that affect buyer from putting insurance and taxes in their name?
4. Am I opening up myself to a liability that I dont want by structuring the deal this way? I dont know what I dont know. So help me know!
5. Is there a better way than what I have put together?thoughts, comments.. anything is appreciated.
Something I just thought about.
Why would I NOT do a 30 years mortgage with the buyer? It would benefit me more because I would make more in interest.
my original thought process was how can I structure this so the tenant is paying me the exact same amount with this deal as they would being my tenant. When doing the math, they would be paying me roughly the same on a 15 year mortgage which is why my original post has 15 years in the terms. But the more I think about it. Wouldn’t I want the terms to be as long as possible, being the seller?
Bryon and Bill,
Would like to hear of some of the solutions. I’ve done a few of these and they have worked very well.
In fact, I could be a potential buyer in this, where you, Bryon, would get the $100k and some of the cash flow (sent you a PM). The buyer could option the property from you for a $100K but would probably want some of the cash flow. The options would prevent a stepped up property tax bill, and give you the opportunity to depreciate it and deduct expenses.
Yes, you could do a 30 year deal, but probably not in your best interest…. maybe.
And as the seller or buyer I always want to pay the insurance and taxes, just to be sure they are paid. Negotiable.
And, yes, the buyer would want his name on the insurance policy as he has equitable interest.
The buyer may ask what you’re doing with the $100K and may want to structure an option with less upfront and perhaps a renewable option deposit for a longer term.
Anxiously waiting to hear Bills comments.
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