Seeking advice on first Family home turned "income property"

Little background

I am currently on active duty military status. I purchased a home in El Paso, TX, a new construction at that. I was expecting to live here for a good while. I paid 129k (26k under list).
3 Bed
2.5 Bath
1521 sqft
Gated Community ($45 HOA fee)
Mortgage is 921.00 monthly

I am now moving and purchasing a home in San Jose,CA and have hired a property manager to manage this property @10% of rental income.

Local market is pricing my rental at 1195-1300.

Seeking advice on what to do as far as how long should I hold? Should I consider owner financing and selling this? I feel that if I attempted to sell as a regular sale I would lose a significant amount of money due to the current market here in El Paso.

Does it seem that I actually have myself a halfway decent first unintended deal? I have been attempting to get into real estate investing, and I completely fell into this by accident and am attempting to turn this into a relatively lucrative deal (if possible)

Anything you can add for advice or if you have a question please feel free to ask! Thank you in advance!

This would ‘end up’ as an appreciation play, not a cash flow play.

It’s usually not profitable to invest in one single family house, cash flowing, or not, from that far away.

Any investment property is likely to cost you 50% of your retail rental income, if you keep your rents at retail.

It can be less for a while, if you defer repairs, and/or you manage yourself. Either way, you’re going to feed this property the equivalent over time.

In this case, since you’re not likely to move back to Texas, unless you know something I don’t, it’s probably wiser simply to sell it, and invest closer to home …wherever that’s most likely to be …even it means waiting a while.

That all said, you could simply feed this property, and force it to be a terribly inefficient piggy bank. That is, it’s gonna be negative for the first few years, but eventually it will pay for itself.

Meantime, if depreciation, appreciation, rent increases, and principal reduction, together outpace your overhead expenses, then maybe you should keep the property.

As far as seller financing, as an exit strategy is concerned, this is a great way to salvage a negative situation. I seller finance pretty houses I own, as my primary exit strategy.

However, unlike most seller financiers, I market to people with money, but no (not enough) conventional credit.

It’s the sweet spot, where I can get over retail and a standard down payments, from buyers that are delighted to own their own home TODAY, in nice neighborhoods, and not five years from now.

I still advertise ‘no qualifying’ financing.

Enough “unqualified” buyers are happy to give me the down payment I want, if they think they can afford the payments, that I have very little problem selling. Of course, I’m only selling on bargain terms, not a bargain price. There’s a difference.

However, that’s how you can sell even an overpriced house and make a profit.

Depending on the laws of your state, your buyer needs to be qualified to buy, through a licensed loan originator. Part of this is confirming that the financing terms and rates conform with the law.

Short of that, technically, if not legally speaking, your buyer could morph into a predator borrower.

That is, theoretically, he could demand the return of all the money paid to you, in the event that anytime over the next sixty months he “feels” he cannot afford the payments anymore. That doesn’t mean he’ll get the money, or that he can find an attorney that thinks you’re good for it, that will work on contingency, and can prove you tried to fraudulently finance the buyer in the first place.

All that just says to me is, there’s no risk here. Not to mention the defaulted borrower is now required to go through financial counseling as part of the remedy. Deadbeats won’t do that. If they had, they wouldn’t be looking for seller financing in the first place.

That’s a lot of hills to climb for predator borrower. And even if they were planning on taking advantage of you, you’re likely going to know right away, not in five years. After all even crooks get used to a neighborhood, and won’t want to move away.

Notwithstanding, my problem borrowers show themselves pretty early on, and I usually find that offering cash for keys is the fastest way to get my house back.

Meantime, there’s been an avalanche of legal research going on regarding this Frank/Dodd horseshit.

What I will tell you, is that we don’t qualify our buyers through a loan originator. It’s an expense that ranges from $1500 to $2500, that we just don’t see as cost effective.

Meantime, think ‘five years, fixed rate, 30-year amortization’ in order to meet the important standards.

As an aside, there’s no law against inducing an early payoff with interest rebates and price discounts.

As far as setting the sale price: You want to guess how much your house will be worth in 60 months, and how much of that appreciation you want to capture as a premium, for financing a buyer who can’t get conventional financing anytime soon.

Hope that helps.

You have certainly peaked my interest with the route of seller financing. It seems this may be a smart route to get out and make a decent sum of pocket change to re-invest locally when I settle in up in CA.

Now with peaking my interest I am still very blind to the process. I feel needy asking for a serious breakdown on how the process works and how I legally should go about it, so I suppose if you could point me in the direction of a good “how to” on setting up owner financing properties and possibly somewhere to find some pre-made contracts just so I could read and fain some knowledge that would be awesome, or if you’d like to personally help/guide me through the process maybe I could offer you something in return? Thank you for your advice, it is greatly appreciated!

My experience over hundreds of houses is that your ‘little equity’ home can be a much larger equity transaction by selling a package of ‘the home with no credit check/owner financing.’ I believe you can sell at a premium when offering private financing…I’ve done this for years and it keeps working, whether it is an expensive executive home or a very low cost mobile home, or anything in between.

The caution and discernment I offer is to make sure you get a large enough down payment from your ‘no credit’ buyer to make it hurt if they default. The default percentages on these deals is directly related to the amount of down payment collected prior to giving possession. Over a large number of transaction once can discern which deals to take and which not to take based upon the down payment and the buyer proving/verifying their ability to pay.

If this were my house, I would put it on the market for around $139900 or $144900 and offer private no credit financing. If the buyer does not have enough down to satisfy you and they want it bad enough, they will get friends/family to help them with the down payment…don’t be afraid to suggest them getting help.

Lastly, NEVER be the first to offer a number for the down payment or monthly payment…he who mentions the number 1st loses in negotiating. Be patient and keep asking what they have budgeted for a down payment and monthly payment…structure your owner financing deal to profit up front on the down payment, and on the monthly payments, and as well on the back end with a payoff amount above what you owe.

Hope this helps.



This sees to be the route that I think will provide me with the best possible return, so that I may seek future avenues in my new local market.

As far as setting the deal up, I have yet to sell a property by myself. Should I retain an attorney to draw up the contract? Who else should I seek out to provide me with adequate assistance to ensure that the deal is 100% legal and will go through correctly?

Rob, for fear of confusing YoungInCA on the issue of down payments and payments, let me say that I keep my negotiations as simple as possible, like “here it is, take it” level of negotiations. I’m not saying it’s better, or worse, but it works for me.

As a result, I publish both my payment and down payment requirements as a qualifier. Like you mentioned, the buyers that don’t put up big enough down payments are the same ones that are more likely to default.

However, by the time I talk with a potential buyer, he’s already heard the details about the house, the down payment, the payment, financing terms, schools, and churches, and called me anyway, so negotiating a down payment, or the payments is less often an issue.

Another thing for me is to avoid ‘discrimination issues.’ I have a one-size fits all, non-qualifying offer: 1) 10% down, 2) 8% interest, 3) 30-yr amortization, 4) all due in sixty months. If you’ve got the down, tell me you can afford the payments, and fog a mirror, you qualify.

I might finance a portion of the down, if it’s the only way I can get the house sold quickly, but otherwise, my selling terms are identical (as much as possible) from one prospect to the next.

That all said, the last thing I ever mention is the sale price. And I don’t usually bring it up, because I don’t sell bargains on price. I sell financing bargains. There’s a difference.

Anyway, your approach to down payments reminds me of Ron Le Grand’s approach. We just settled on the “here it is” negotiation method.

Great post.

I placed the house on the market today, and have two interested parties both coming to view tomorrow actually.

I have contacted an attorney with the idea of having a contract ready if the prospective buyers decide to move forward.

With a seller financing and a wrap, doe it still go to escrow and title servicing? I am a little confused about the process after the offer is accepted with this style deal?

I let my buyers pay for title insurance, etc., when it’s time for them to refinance, but I don’t offer it up front.

Texas has different laws than most states when it comes to these transactions.

Otherwise, your buyer has to have enough to put down, plus whatever he needs to pay for closing costs, if any.

Meantime, you would simply take the accepted purchase agreement (aka escrow instructions) to the title/escrow company, and they’ll handle it from there.

Or you could have your attorney handle the closing/recording. Probably the same price after all is said and done.

I like attorneys, because it brings some professionalism to the transaction …despite the fact that I can save thousands having my buyers show up at the same time with my traveling notary, to the house, and sign the paperwork on the kitchen counter.

I don’t allow my buyers to record anything against the property, but I do set up a note servicing account for that buyer, and call it a day.

The title company will insist on recording the documents/deeds/notes/agreements because that’s what they do. That’s the main reason I close on my buyers myself, or with an attorney, so that I can control that aspect without an argument.

Even if the contract says that nothing is to be recorded by the buyer, the title company will not comply with that stipulation, and/or they won’t close on your buyers for you.

It seems the Due on Sale clause is going to snag me up, I believe you were touching on that subject slightly with recording and using an attorney.

Can you elaborate on how to get around this Due on Sale clause so that I can proceed tomorrow if one of these buyers choses to move forward with a purchase?

No, it won’t.

I’ve been taking over loans and getting deeds for 25 years.

AFTER the banks starting inserting that clause.

If your payments are made on time, there’s not a lot of equity, and if there’s less than 4pts difference between market interest and the interest of the loan, this will never be an issue.

Frankly, we’ve taken over loan that were delinquent, took title, and brought the loan current, and never heard a peep.

Of course, we know what we’re doing. We don’t announce our intentions, try to get permission from the bank, talk to minnows at customer service about what we’re doing, and otherwise disturb the ‘hive’ at the bank.

If your attorney (or any professional) tells you that it’s illegal to take over loans sub2, or the due-on-sale clause will be “triggered” if you sell/buy sub2, take your pencil, and shove it up your attorney’s nose, and tell him to sniff as hard as he can, because his brain is clogged with shiite.


You brought up note servicing. I found a note servicing company for 499 entrance fee with 49 dollar per payment fee. Does this seem reasonable or do you know of a better company?

I pm’d you a message. I don’t want to broadcast that information here.