Tote the note - renters want to buy the house

[John Nail]

Not sure what area in the forum this question should go in.

One of my renters wants to buy the house they have been renting for the last 7 years, but they want me to carry the note.

At first I declined, but I told him I would consider it if they could put 20% down. That would cover any repairs and foreclosure costs if they defaulted. This year the taxes on that house were calculated on $70,000. I worked up an amortization schedule - Sale price $75,000 (owner-finance penalty) with $15,000 down at 7% for 15 years. That would make his payments the same as the rent he's been paying, only the house would be his in 15 years.

Are there any penalties I should worry about such as gains per year for the next 15 years?

Are there any laws in Texas that don’t require that they should then be responsible for any repairs and maintenance issues, or is that something that could/should be in the contract.

Thanks

[Travis H.]

Owner financing is a fantastic way to sell a house in today's market, and a tenant that you have had for 7 years is a great candidate!

You don't have to worry so much about foreclosure costs, IMHO. This is actually much better than renting - they will have more pride in ownership of the house than they had previously. Foreclosure is only expensive if you hire an attorney to do it for you. Carpet and paint is all you will need to get it back in good condition - you don't expect your tenant of 7 years and buyer to walk off with your copper or AC condenser, do you? (I'm sure you wouldn't be considering selling them the house if so!)

Instead of focusing on the amortization of the owner financed note, I would focus on the monthly payment. Your tenant is already renting in terms of monthly payment anyways. So reach an agreement on the sales price, down payment, and monthly payment (PITI and use a loan servicer). This way, you maximize your monthly income off of the note, and the buyer is incentivized to refinance to a lower fixed interest rate as quickly as possible.

Give me a shout if you need more help on this. I specialize in owner financing and we've done over 800 transactions in Texas.