Nothing but Good Options, (but which one?!)

[Joseph E.]

We bought a house in North Virginia in 2019 with a VA loan for $510,000 and zero down, at 2.875%. We lived there for 3 years and then got stationed overseas in Japan. We have been able to rent it out with zero vacancies for $3,300 month, with the mortgage, property taxes, insurance and other expenses totaling ~$2,900. We don't really need the $400/mo cash flow and so have been saving that just in case the house needs a major repair. All the tenants have been easy and low maintenance so far. The mortgage balance is currently ~$475,000 and estimated market value is $715,000. With the VA loan you can transfer it to another service member or veteran and they get to keep the same interest rate, but they would have to come up with the remaining balance (~$235,000). We know several people interested and could make a deal without having to go through agents to save 6% on fees. We have no plans to move back to Virginia and are looking at two options:

1. Keep renting it out, start to increase the rents, and continue to watch it appreciate.

2. Broker a sale to another service member/veteran with a transfer of the VA loan (475k @2.875%) and seller finance the equity (~$235,000 @6-7%?). I think this could increase our cash flow to ~$1,400-$1,600 a month.

What would you recommend? If we go with the second option and offer seller financing for the equity what interest rate should we charge and how would we go about setting that up?

[Don Konipol]

Sell with 9% down and a wrap mortgage at 7%.  Your note would be $650k so you’d be receiving $45,500 in interest annually initially, and paying out $13,500, so net to you is $32,000 annually in interest.  Your equity is being paid out in monthly increments also.  You would have your $175k equity left “invested” to receive interest of $32,000 for a 18% return.