I bought a property last year, got caught in the middle of the mortgage meltdown which forced me to refinance it eating up a bunch of equity, but managed to get it lease optioned and cover expenses. The tenant can’t get a mortgage and has asked for owner financing. He’s got plenty of cash but can’t or won’t document it. How should I structure this or should I look for a new tenant?
Existing deal with tenant:
Sale price $419,900
option paid $5,000
rent credit $1,000/month = $12,000
$373,500 @ 7.375% Interest-only till 8/1/2017, 20yr amortization after that.
Insurance escrow: $88
Tax escrow: $334.24
I’ve contacted my realtor to run comps. Prices in this neighborhood are level or appreciated slightly from last year so MV should be $420k or higher.
The tenant wants to pay off the property using this owner financing so it not looking for a balloon payment but a fully amortized loan e.g. 30 yr fixed. But, I might be dead by then so would want to structure it such that I could sell the note if I chose to.
I’ll be crediting him with $5,000 paid but rent credits are gone once current option agreement expires.
What interest rate should I charge? 9%?? Terms (with 10% down, with less down)? Land contract, wrap, other? Property in North Carolina. How should I protect myself if tenant gets into trouble with IRS? I’ll be using an attorney to draw up all paperwork. PMI, taxes and insurance will be passed along to tenant buyer.
I’m also reading the OWC e-book – thanks for that advice! I started REI before finding this forum and hope to structure this deal to correct my previous mistakes and produce positive cash flow. I could probably Lease/Option for $430-440K with similar terms but it’ll take at least a month vacancy before filling this size property. A personal financial issue last fall (hospitalization, out of work few months, kid started college and more) used up my cash reserves so I’m nervous about kicking out a tenant who can come up with $3-4K a month but can’t get a mortgage.