Seller financing case

[Demjan Van Der Kach]

Greetings,

I am new to notes and have a property I would like to sell. I am going to describe the "case" and would really appreciate your ideas on the seller financing route. 

The condo 3 bed 2 bath, 1150 sq ft is located in central Phoenix, AZ in a nice gated community. The HOA says the complex is 49% or less owner occupied. So, FHA loans are hard to get. The complex is well maintained. The unit is in a very good condition, has a garage. We paid 115K cash in 2012 and rented it out since than. Rent about $1150-1200 per month. Currently the comps for the same units (they don't get to the market often) 220-235K. We put the condo for sale on MLS for 229K. There is an average traffic but no offers. 40 days on the market so far.

I like the idea of selling but started considering seller-financing option that I have never done yet. My knowledge is limited and I would appreciate your input. 

I made some spreadsheet and ran a few numbers using financial calc... but the more I look at it the more questions arise. My plan A to keep the note (notes) for 2-3 years and than sell to probably an institutional investor. 

My current thoughts down payment 20-30% and the note for the rest 8.5-9% with the balloon after 5 years. Or shall I offer the 1st and the 2nd position?

Are the seller financing of condos with owner occupancy less than 49% difficult?

I am interested to learn about the tax consequences of down/payment/ installement payments. I hope I don't need to pay taxes until I "recover" my initial investment cost (that was 115K) or basis.

I am planning to talk to title company and probably lending attorney to "minimize the damage".

What is the closing costs for seller financing deal in comparison with conventional buy/sell transaction?

Thank you.

[Andy Mirza]

@Demjan Van Der Kach Is your primary goal to cash out or to hold paper? If you are more interested in cashing out, you'd be better off waiting for an offer to come in, maybe lower your list price. I don't know what your market's like but, in general, 40 days on the market isn't that long.

Again, not knowing exactly what's going on in your market, I would bet that there are plenty of lenders out there that will finance with less than a 49% owner occupant ratio. FHA will not so you will limit your pool of buyers. I would still check with FHA or have a mortgage broker check for you to make sure that the complex is not FHA approved. Whoever you talked to at the HOA might have had an agenda or may have given you bad info so I would double check.

Offering seller financing may help by increasing your pool of buyers. I've never originated a note like this before but I've read lots of posts over the years cautioning the use of Registered Mortgage Loan Officers (I hope I got that right!) to originate loans for you to ensure that you're in compliance with the CFPB and Dodd Frank when lending to owner occupants. There are exceptions if you're doing a one off but definitely learn more. You can search this BP and find this information.

If you do go the seller financing route, your note will be worth more if you make the effort to make it "institutional grade" and have it serviced. If you have a cookie cutter, two page note, short form deed of trust, and no servicing comments or pay histories to show your buyers, you won't be able to get as much for your note.