A Note with an Option to Purchase

[Eric H.]

Hey BP Fam,

I have been working with a motivated seller for about two months now trying to make something happen. He needs the money for another business venture and his business partner is putting pressure on him to make a decision. It’s not enough spread to wholesale but its still a good deal as a rental.

The problem: He has a mortgage of 20k. He is willing to do owner financing but he needs cash. So I would have to pretty much purchase for his asking price of 45k (or make a down payment in excess of 20k) so he can walk away with some money to fund the next business venture. I can not get traditional financing, the purchase price is too low for lenders that lend based on property dti, and I am not willing to give him more than 15k down.

The solution: Create a 2nd position note for 15k and a option to purchase in a year or two at 45k with principal and interest as a down payment. Is this feasible? If so, what paperwork is needed? Has anyone done it? How was your experience?

Thanks in advance for any feedback you guys can provide.

Sincerely,

E. Harris

Baltimore, Maryland

[Craig Brouillette]

You shouldn't need an option since at closing the title will be transferred to you, right? Are you assuming his first? Having him hold a second and then paying him $15k?