Selling our first BRRRR property with seller financing

[Andrew Tanner]

Hello BP community,

My partners and I have a BRRRR property we are ready to sell to start to scale our business. Here are the figures:

$40k purchase

$41k renovation 

$141k (Sept 2019) appraisal 

$105k cash out mortgage @7.5% interest only.

Rents for $1200/mo, renter has been in house since Nov 2019, lease runs through Dec 2021. She always pays late, but always pays and happily pays late fee with no fuss. There is never any drama at all from the renter or her kids. She loves to care for the yard  as a hobby so we knocked $50 off the original rent of $1250. We know the renter does not have the resources to purchase the home. Would happily recommend to an investor that the tenant stay with the property.

Net cash flow after expenses is $425/mo

Property values in the neighborhood have increased 10-12% since appraisal. 

While ideally we would hang on to this property for another few years (values in this neighborhood will continue to go up due to proximity to KC downtown and commerce areas, and big mixed use developments that have begun in the area) we have had some huge opportunities land in our lap that require us to have some cash on hand, so we are looking to sell and 1031 the profits into this opportunity. A majority of the excess cash from the cash out is tied up in another BRRRR project we are working on now.

Based on the increased property values and NOI we believe the house should sell for around $165k.

Our thought is to sell the house with seller financing with a 15-20%, down payment (more than enough to get us into this new opportunity), 8-10% on the remaining loan with a 5 year balloon. This allows us to move onto bigger things and and still receive the monthly cash flow.

My question is how do we execute this and satisfy the current mortgage holder? 

[Wayne Brooks]

@Andrew Tanner Why try to owner fiancé it, why not just straight up sell it?