Setting up an owner finance deal

[Brian Price]

New to RE investing. Put my house on the market FSBO 5 mo. ago. My thought being, how do I gain experience if I just list it with an agent!?! Most inquiries have been from other investors. So I added "possible owner financing" to the listing and got a fish on, now what!?!?

Can someone tell me how to structure an Owner Finance deal?

As I'm writing this, I'm not even sure if it's doable! I have $170,000 mortgage at 6%, with a pmt of $1850/mo plus $100/mo HOA, taxes & ins. and my asking price is $289,000.

Any advice?

[Farrukh Amini]

Selling with owner financing is possible even when there's an underlying loan. As long as your loan is not a USDA loan (which has an occupancy requirement for the life of the loan) or a reverse mortgage (which I doubt is what you have). FHA loan also has an occupancy requirement for the first year of the loan.

To sell on terms you have to make sure to have sufficient protection in case of the buyer default. You have two routes to go in your case: sell on a Wraparound Mortage (Wrap) or Contract For Deed (CFD). They're similar concepts with one main distinction: in a Wrap the deed transfers to the seller and in CFD the deed stays in your name. When I personally sell on owner financing, 90% of the time I will cell on CFD because it gives me better control since I still have the deed (keep in mind that while in most states you are able to go through eviction to get the house back in case of default, some states require you to foreclose - no deed-in-lieu). If you sell on a wrap then you have to foreclose to get the house back.

Now, to structure terms, you'd want to make it favorable to you, but also be reasonable so it makes sense to your buyers. For example the interest rate you"ll offer has to be higher than your underlying loan, amount of downpayment, always amortize longer than your underlying loan, see if you want to put a balloon in to encourage earlier payoff, etc. To determine the interest rate and terms you'd look at your current market rents for a similar property and structure your monthly payments within a $100 range above or below that rent rate so it makes sense for the buyers to buy instead of renting. 

I'd be happy to run some numbers and give you examples but I'll need to get more information from you, like the rent rates in your market, your exit goal, your loan PITI, whether the property is a homestead, etc.