Setting Up and Marketing 4.25% Seller Finance Deal

[Jared Haxton]

Hi BP Community,

I own a 2-bed/2-bath condo in Prescott, AZ (near Embry-Riddle Aeronautical University, hospitals, and medical facilities), and I’m exploring selling it via seller financing. We have had it as a rental for 5 years now and have had only 15 days of vacancy. I’d love your input on whether this deal could appeal to investors and how best to structure it.

Property Details:

• Worth: ~$300,000
• HOA: $273/month, Taxes/Insurance: ~$170/month
• Current Rent: $1,880/month (long-term); next tenant advertised at $1,950/month.
• Mid-term rental potential: ~$2,400/month (I haven’t tried this, but it’s my estimate).

My Financing Idea:

• Large down payment: ~$125,000 (This is my priority to reinvest elsewhere).
• Seller-financed balance: ~$175,000 at 4.25% for 30 years.
• Buyers take over taxes, insurance, and HOA.

Questions:

1. 1. Does this structure make sense for investors, or would you recommend different terms to make it more appealing?
2. 2. For those who’ve structured wraparound mortgages, what strategies have you used to avoid triggering the due-on-sale clause?

Thanks for your thoughts! It has been a great rental and would continue to be one but I think I am ready to sell it!

[Melanie P.]

@Jared Haxton You are not going to be able to do an owner finance transaction without paying off the existing loan. So if you go that route the $125k down payment will be directed to your mortgage company at closing - not you. 

What your deal would ultimately entail is a buyer who trusts you enough to give you $125k and trust you to pay it back while his property is encumbered by both your seller finance note and your original mortgage for $125k. This is not gonna happen. 

You can simply list it as a $300k sale and list Seller Finance as one of the financing options in the MLS. You will get plenty of offers but bear in mind you'll need a lot more cash to pay off the mortgage and walk away with dollars at closing. If you're going to reinvest the proceeds you might want to consider a 1031 exchange or a cash out refi to generate the investment funds you desire for your next project. Good luck.