My Tenant Wants to Buy the Property through Seller Financing

[Brian Dvorak]

Hi,

I have a property in Detroit, MI, and the tenant would like to purchase the property through seller financing. I have never done this before, so would like some advice. I own the property free and clear. I'm thinking of these terms.

Sale price: 55k

Term: 10 years at 6% interest

Down payment: 3k

How does seller financing work? Do I just go through the title company and a bank? Do I need an attorney to help structure the loan and details?

Also, I hold the property in a trust. Should I change the deed to my name? 

Any advice is much appreciated.

[Derek Dombeck]

Quote from @Rose Jones:

Your interest rate should be higher than 6 percent. You are doing him a favor by being the bank.

I don't know how to do the math out exactly. I am looking on this forum and elsewhere to find the calculators.

And remember that you own the property until it is paid off. 

Good job on being creative with your investment!

PS - I know the Detroit market has potential - I sure would like to figure it out.

 If you sell via land contract, you would still own it as the deed does not transfer until the contract is paid in full. If you sell outright and take back a promissory note and mortgage, they get the deed immediately and you have zero ownership. Which is better? It depends on your goals. With a land contract, you still have liability risks and if the buyer ever incurres liens or judgments, they will attach to your property. (Ask me how I learned that one)

With a note/mortgage you have zero liability and it's much easier to sell the note for cash, should you want to in the future, but you give up control/ownership. 

In both cases, you should research your states foreclosure laws to know how much it will cost and how long it will take to get the house back in the event of a default.

Make sure they list you as a lender on their homeowners insurance policy, and not as an additional insured. There's a difference in the order of payouts in the event of a claim.

Don't be afraid of holding paper, its a beautiful thing. But, know the process before you sell.