Should I become the bank?

[JW Franz]

I am based in Tampa and own a portfolio of 46 SFH Rentals, all are rehabbed and rented. Most have ARV of $150K. With the prices moving higher I am considering sale of all or part, in the coming year. I am 52 an would like more of an income stream than a lump of taxed cash. Another larger investor suggested I sell the properties and offer self financing, note and mortgage. Does anyone have experience with terms for such? Rates, down payments, terms. I was considering selling the properties at a 10% premium to the ARV, 20 year, 8%, 5% down, 1/2 point. Thoughts? Also, most of the properties are owned without loans, a few have a commercial portfolio loan against them. Has anybody done this? What are some of the gotchas? What are some tax implications?

[Dion DePaoli]

The Seller Finance Rule of DF would allow you to Seller finance no more than 3 properties per 12 months to primary users.  I am guessing you don't want to spend 18 years liquidating these properties.  

The idea that an RMLO provides license exemption is inaccurate. In the state of Florida if you extend credit more than 3 times in one 12 month period you are required to hold a Lender's License issued by the state. RMLO's work for lenders. They can not operate on their own. Generally a Lender License is only issued to a previously licensed loan originator with two or more years of experience.  Though experience in the mortgage industry can be considered by the DFS.

Aside from a straight sale you could offer the portfolio in whole or in part to other investors with seller financing.  This would provide you with an exemption from the required licensing of being a loan originator.   Offering the properties as a portfolio with tenants and rental income to other investors does not require a loan originator and lender license.  The transaction is considered commercial in nature and the parties are expected to be sophisticated to judge their own risk.  

The idea of selling for a premium on market value is egregious.  I would get that idea out of your head.  

Terms to an investor would look something like 20% to 35% down (or more) with 10% over 10 years or not more than 20.  The tweaking of those terms would be relative to the cash flow of the portfolio or chunk of portfolio being financed.  I would keep the term of the loan short as your sale into them with financing allows them to take title and season it while building cash flow and reserves which should allow them to qualify for an institutional loan to take you out.   Depending on the strength and experience of that borrowing entity you could also seek additional collateral and security through crossing other property owned or filing a UCC over the company.