I have a renter who wants to buy my house. She has 40,000 to invest from the sale of her last house. I don’t know her situation on qualifying for a new loan. I would like to use this 40k on another investment.
My mortgage is 700 month with a balance of 148,000, interest only 30 jumbo loan. Her rent is 925 a month.
The comps are currently 225,000-259,000. I am new to all of this and need to know how to structure this deal properly and legally to avoid any extra costs or fees so it could be a win-win situation.
Do I need to contact the lender first, etc.? What is the time frame it usually takes to close on seller financing sales? What forms do I need?
Thanks
You can do a lot of creative things to get out of that property and move on.
If you want to do seller finance with your renter you would not need to contact the lender. Most lenders do not want or need to know about your seller financing. You could just do a wrap around mortgage. Basically you would sell her the house and finance the whole house and she would pay you mortgage payments every month.
So say you sold the property for $250,000 she puts $40,000 down and you create a note for $210,000. She would then pay you the monthly payment on the $210,000 loan. You would use part of that payment to pay your $700 mortgage the rest is yours. The only thing you might want to look out for is the due on sale clause with your current mortgage.
Your escrow / title company can help you create the note and the deal can close in a week or two.
What I would do is take the 100 grand or so profit from the sale and 1031 it to a larger place. That way you get your money upfront and can avoid capital gains. But that is just because I don’t like to risk of being the bank. I am in the real estate business not the financing business. Everyone has different niches you may like the notes and paper side of real estate.
Thank you for your reply. What is a fair time frame for the due date?
What interest rate should I charge her? Should her monthly payments remain at $925?
I am putting another house into a 1031 that I just put on the market last week. I already located the 1031 exchanges.
If I sell at 750 and have a mortgage at 508,000, do you have to put the entire 750 into an exchange or just the profit?
Sorry for all the questions.
I a very new real estate investor. Last summer I bought my first rentals.
I can’t afford to make any mistakes and I want to learn as quickly as I can. I just hired a team of advisors who are all trying to get me in their deals. I must do my own research first.
I am very interested in hearing all I can about hard money and notes. Why should I pay commissions, points, fees, etc., to others if I can close all the deals out there on my own?
I appreciate any advice you can give me. Thanks.
Howdy Lindagalindo:
The 1031 needs to be $750,000 purchase or larger with all the cash proceeds going into the new purchase as well as a mortgage equal or larger then the $508,000. Any less mortgage amount or less cash used will be considered “boot” and will be taxed as income from the sale.
Hope this helps with your question.