Would you even consider seller financing?

Question

Hi, I own a townhouse in FL that I bought 10 years ago for 100k. Its worth about 220k now and cash flows around 1k a month after HOA etc. I owe 58k left in mortgage. If i did seller financing to another landlord, they may have an issue renting it due to 1st year HOA rules. That may prevent them from buying.  Should I even entertain looking into this more?

Taylor Dasch · Answer

Depends on the amount you would get on the seller financing if your just selling it for the same amount and are going to walk away with the same net, I wouldnt entertain it at all, but if you are going to make a decent profit, Id say its worth looking into. I am sure there are ways to get around that rule.

Obed Calixte · Answer

If the HOA requires owner occupancy the first year before renting, an investor is going to have a hard way navigating around that regardless of the financing used.

Bill B. · Answer

99% of the time an owner occupant is going to pay you a higher amount than an investor/landlord, so it probably won’t come up.

I never even considered it until I did my first one in January. Let me tell you why.

They put down 25% ($150k)

There’s a 5 year balloon. (The shortest allowed under Dodd-Frank for owner-occ)

They’re paying 7% (Barely a consideration. But I was going to put the money in the bank anyway as I didn’t need it.)

They are paying for professional loan servicing

And most importantly. They offered $10k over asking, zero repairs, zero appraisal, AND, they were my only offer in 45 days.

Even with what I hope will be a positive and risk free experience, it will only be a complete lack of other offers that would ever make me consider it again. If you have other offers go that way. Otherwise get at least 20-25% down as you still owe all closings costs (likely 8-10%) so 10-15% down won’t cut it.

Andre Brock · Answer

Seems like those first year hoa rules might be a minor issue but if you stand to profit I would explore it.

Patrick Roberts · Answer

It sounds like the math checks out, but the underwriting doesnt. Since you'll be bearing the credit risk on this, do you think that the deal would be sound for your borrower and that they would be financially solvent to pay you without defaulting? I personally prefer carrying notes to owning rentals, but the credit risk has to be solid, too. I would underwrite it just like any other lender would. If they dont have the capacity to repay because theyre overleveraged, then theyre promise to repay may not mean much.

Would you even consider seller financing?

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