Can you sell a property by owner finance with a mortgage?

[Dale E.]

Hi BP community,

Looking for some creative advice.

I acquired a 4b sfh through an online auction about a year ago and completely gutted the home and upgraded mostly everything. Unfortunately, I made several budgeting mistakes along the way and now have less equity than I had hoped for in the property. Property is located in Illinois.

Here is where it stands as of now:

- cash out refi about to be complete. I'll get most all of my remodel money back out and be left with about 20% of my own money in the house

- cash flow will be limited once rented. The house will break even or profit about 100/month free and clear with about a 10% cash on cash return projected

What I am considering / looking for advice:

- can I owner finance a property if I have a mortgage on the unit?

- can I rent to own if I have a mortgage on the unit or is that essentially the same thing as the above question?

- does anyone have any advice on these strategies that I can learn from? My leading thought is to try and offload the property through one of these approaches as it is a quality home that I think I could sell to a current tenant of mine from another rental unit. My goal would be to make a higher return in the next 5-7 years, lock in current market prices, avoid some selling fees, and free up more cash right now for an opportunity that I have an eye on that looks more profitable.

Any advice / suggestions would be greatly appreciated 👍

Thanks!

[Bill B.]

The closest/safest option to what you’re thinking would be an option.

Take an option payment. Say $10k or 5% of the agreed upon future sales price. That money goes towards the purchase if made, or is forfeited if no purchase takes place. Then charge high end of the market rent.  They have the option (but not the requirement.) to buy the property in 2-3-5 years for price x or forfeit their option money. 

The reason you avoid the owner financing when you don’t own is=t is the bank can call it due. Then either you or the seller has to come up with all the money or the bank sells the property. Plus you can no longer evict the tenant. You have to foreclose on the new owner.