Owner Financing Note investing

[Matt McCurry]

Let's say I get a property at a discount for $35,000 owner financed. The owner is free and clear owner. structured as so:

Payment = 416.67/mon

$5000/year for 7 years

This goes through escrow and he holds the note. 

I want to seller finance this to another tenant buyer. I get the buyer to agree on terms such as $65,000 with a $10,000 down payment, 8% interest for 15 years. 

how is this ultimately structured? What is this note called that I own with my new buyer? A land contract? a note? do I still pay taxes and insurance? 

Thank you. 

[Ned Carey]

@Matt McCurry No you do not get your seller to do a new loan. You do the new loan with your tenant buyer and he or she pays you and then you turn around and pay the original owner.  The original loan from the seller to you stays in place.  As @Terrence Evans this is called a "Wrap", because your loan wraps around the original loan.

Now the wrap is just a slang industry term. Your new loan is still a NOTE. The note should be secured by a mortgage or deed of trust. Alternatively you can do a contract for deed. Exactly which is best will depend on you specific state laws. 

Who pays for the taxes and insurance is a negotiable item. Most people who talk about this would say get the tenant buyer to pay. However this could potentially be a problem with evictions. Your state may not allow you to evict for non payment of rent if they pay the rent but not the taxes or insurance.  The way around that is to simply add those amount to the rent.

Now you have a little problem with your original loan from the seller. The IRS requires the loan to have interest. Again the way around it is to structure it at the same payment amount, but adjust for part of it being interest. The required rate the IRS expects is pretty low right now, (1-2%~ I think) so you might be able to just add it onto your payment, it won't be much.

The above is not intended as legal advice. It is intended to encourage you (and anyone else) to see a competent lawyer on how to structure this.

You do not need the attorney ahead of time. Come to a basic agreement with your seller,then go to an attorney to get it structured right and write up the documents.