Question about seller financing

[Brandon Wulff]

Hey BP community,

I have a question for all you creative deal people out there. I have a friend of mine who owns 6 rental properties here in Vegas, and one property that they live in. They are planning on moving to Virginia in the next few years and they want to transfer some of the ownership of those properties to me. I spoke to them about seller financing and they are excited about that idea, but they don't own each property free and clear. There are some properties that are free and clear and others that are still being paid off. I have also been a baseball player for the last two years and my income as a minor league baseball player would not qualify me for a traditional or FHA loan.

In terms of down payment options I have enough, but not enough to buy all 6 houses.

The owners like the idea of keeping the cash flow as they move to retire, and the idea that they may not need to pay capital gains (they bought these houses in 2009-2015 in Las Vegas $$$), but in order to transfer title and ownership they would need to take care of the existing mortgages.  They also don't want to maintain ownership because they want to transfer the ownership to me and give me the chance to build out a larger real estate business

How would you consider structuring this deal?

Thanks,

Brandon Wulff

[Patti Robertson]

Selling a property with seller financing that has a loan on it is called selling with a "wrapped mortgage".  Most mortgages have a "due on sale" clause that require the mortgage to be paid off if the property is sold.  While the lender does have this option, the reality is that as long as the mortgage continues to get paid, most of the time, the bank never acts on this clause.  This could change if we enter into a cycle with much higher mortgage rates.  Not all mortgages have this clause.  I had several properties that commercial mortgages on them that did not have this clause, and we sold them on land contracts.  My last one just paid off his mortgage with me after I held his mortgage for 11 years.  His original mortgage preceded Dodd Frank and had a 5 year balloon.  He couldn't qualify to refi out at the 5 year mark, so we refi'd him into a 20 year amortized loan with no balloon.  He tried a couple of times over the years and could never get approved for a traditional mortgage, so he just started stockpiling his cash.  He eventually saved up enough cash, including cashing out his 401K and paid us off a few months ago. Total win-win for both parties!