Rental to Owner Finance?

[dodge man]

Emotions and money don’t mix well. You are trying to be nice to these people which is noble, but what happens if they start missing payments. I would do this for my son or daughter, maybe a very close friend, but otherwise no,

 

[USAFpj]

....you are selling them the house for $300k and playing banker.

LD1, may I ask where you're number came from? My financial uptake is slow Basically, they will continue to provide us rent for the next 15 years, it just has simply went from $1400 to $2100. If, for any reason payments are dropped, the house is still in my name, and all of that cash is forfeited.

My math shows $5K down, then $2100 x 12 x 15 equates to $383k

Remember that if sold the house outright, that profit will be used to become debt free. I understand the compounding interest component, but I need to clear debt first.

 

[USAFpj]

You're right on the emotional aspect! They're not in a desperate way and finding other housing would not be too difficult. He is a good friend, and a preacher/Pastor of a church- I would like to think his word is his honor, and it has been for the last eight years.

However, maximum profit now is my one chance to be debt free at 47, and start pumping money to retirement funds...

 

[dougtrr2]

I think I would be inclined to sell the house on the open market, but give them the right of first refusal. Keeps it much simpler and reduces your potential headaches. In todays housing market if you allowed them to buy the house (from a realtor) at your asking price, you would be giving them a bargain. It seems like in today's market, if you want a house you better be willing to offer over the asking price. Seems crazy to me.


Doug in SW IA

 

[USAFpj]

I think I would be inclined to sell the house on the open market, but give them the right of first refusal. Keeps it much simpler and reduces your potential headaches. In todays housing market if you allowed them to buy the house (from a realtor) at your asking price, you would be giving them a bargain. It seems like in today's market, if you want a house you better be willing to offer over the asking price. Seems crazy to me.


Doug in SW IA

You're correct, Doug. In a similar neighborhood, a teammate sold his home for $15K over asking, due to a bidding war...

 

[LD1]

LD1, may I ask where you're number came from? My financial uptake is slow Basically, they will continue to provide us rent for the next 15 years, it just has simply went from $1400 to $2100. If, for any reason payments are dropped, the house is still in my name, and all of that cash is forfeited.

My math shows $5K down, then $2100 x 12 x 15 equates to $383k

Remember that if sold the house outright, that profit will be used to become debt free. I understand the compounding interest component, but I need to clear debt first.

Yes, if you plan on being their banker and charging 0% interest....then your numbers are correct.

But go to a mortgage calculator.....put in 300k for 15 years at a current "normal" interest rate and you come up with ~2100/month.

So by any other standard of measure......THEY are buying the house from you for the SAME monthly payment that it would take to buy a 300k house. Except they are getting a 450k house from you.

IF you want to cut them a deal and sell them the house for $400k.....then you should be charging ~3000/mo and thats at 4% interest.

You say you still have a mortgage on the place. So YOU are paying interest.

You can look at this two ways.....
1. You are selling the house for $300k and charging them 4% interest. ($150k below market value)
2. You are selling the house for $390k ($60k below market value) and charging them 0 interest to boot.

Either way....you are screwing yourself IMO

 

[USAFpj]

Understood. Thanks for your time- that is clear to me, now.

 

[MossRoad]

You're right on the emotional aspect! They're not in a desperate way and finding other housing would not be too difficult. He is a good friend, and a preacher/Pastor of a church- I would like to think his word is his honor, and it has been for the last eight years.

However, maximum profit now is my one chance to be debt free at 47, and start pumping money to retirement funds...

A bit off topic maybe, but I have some thoughts on "debt free".

What's more important to you?

Being technically "debt free"
or
Having a positive net worth of significant size.

If you have not done so (if you have, ignore), do a net worth statement for yourself. Add up the value of everything you own: houses, cars, property, furniture, tools, bank accounts, retirement savings, velvet Elvis paintings, etc. Everything. Then add up everything you owe: mortgage, car loan, land loan, college loan, etc. Subtract what you owe from what you own and that's your net worth.

We've been keeping track of our net worth since we got married in 1985. It's been on the plus side since we said "I do." Yes, we had a mortgage. But if we sold the house and paid off the mortgage, we'd of had money in the bank due to the equity in the house since the first payment.

See what I'm getting at?

You may owe $250K on a house that's worth $500K. Do you consider yourself $250K in debt, or do you consider yourself $250K in the black?

I'm the optimist. You have a positive number of $250K if you sell the house. You could rent an $800 a month apartment and pay $200 in utilities and have housing for 250 months (20+ years) with no worries. So you're never going to be homeless.

Technically, my wife and I are not "debt free". We have a small balance on a home equity loan. So we have debt. However, we've had a positive net worth since the wedding in 1985, and that has doubled every 7 years. I've considered ourselves 'debt free' since we paid off the house in 1995 when I was 34. If we sold everything we own and paid off our debts, we could live off of the interest on the lump and never touch the lump. That is a great feeling!

Knowing you're financially secure with a large positive net worth, in my opinion, is much more valuable than being 'technically debt free'.

Get a pencil and paper and start looking at the best way to grow your net worth over time.

Do you want the chunk out of the house right now?
Do you want predictable monthly income from the rent-to-buy?
It's not guaranteed if something happens to the renters.
You do get the house back if they forfeit, and you could then do it again, or sell it outright.
Can you do more for yourself with a chunk of cash VS a stream of cash?
Would renting it for the rest of your life provide more income over time?
Will the value of the house increase, stagnate, or drop?

A bird in the hand is worth 2 in the bush.

Lots of things to think about. Don't let sentiment get in the way of sound business practices.

Again, good luck. At least you're realistically thinking about your future, and that's a step up form a lot of folks.

 

[USAFpj]

Thanks, Moss! Great questions, and sobering as well. Your reply is not off topic, as the debt I am referring to is credit card debt! In 2017, I was waiting on a security clearance to be approved, and in the span of 3 months, went through the savings and credit card black hole. The percentage is tiny on the sum, but it nags me to no end.

So you are absolutely welcome to discuss the aspects of good/bad debt, and the deciding point is should we accept the market high and sell while crazy, or trust in that 15 year trickle of increased 'rent' flow. Either way, I'm getting a new tractor- my 57 Ford 841 is driving me insane these days

 

[MossRoad]

Thanks, Moss! Great questions, and sobering as well.

It's one of the problems with doing business with family or friends.