Rental to Owner Finance?

[USAFpj]

I have a second home (mortgaged) that I have rented to the same couple since 2014. They are Church-friends of ours, always pay on time, and I have not kicked in more than $100 for repairs since then. The rent ($1400) does not meet the mortgage ($1600), and the wife and I are ready to sell. The market, like everywhere else, is crazy- I owe $200k on it, but it currently appraises (Zillow) for $456k.

The renters have made an offer to purchase the house, but do not/can not afford the down payment and bank fees. We want them to stay in the home as well, and we also would like to avoid realtor fees, capital gains, and maintenance. We do not need a lump sum profit.

Their offer is $5,000 cash, and a monthly sum of $2150 for 15 years, perhaps even paying the total sum early. This equates to a total sale of $392K for the house. We are content with that.

Aside from the numbers, has anyone run into this scenario before? A real estate lawyer is a MUST for me, but others state that them increasing the payment for the house is just a better idea than our current rent set-up. I believe a contract is needed to protect them, as a lot of life's problems can get in the way in fifteen years- new HVAC, roof, appliances, etc...

Thanks for any insight.

 

[MapleLeafFarmer]

as I age I want fewer headaches... try to avoid "stepping deep in it" every chance I get. Don't need and maybe cant handle stress.

Carrying someone else s mortgage and playing banker creates a pile I wouldn't want to have to step in if something goes wrong so just me (and only me) I would avoid unless family member where I would be prepared to loose out and write off as part of an inheritance.

But good on you for considering.

 

[USAFpj]

Thanks, Boakley! That's the aspect that makes it seem clear- it remains my mortgage. Once the final amount is paid, I then transfer title. I hear ya though. It may sound easy, but banks do things their way!

 

[MapleLeafFarmer]

how about a rent to own agreement.
Say have them pay $500 more per month for 5 years.
Then after 5 years you have $500 * 12 * 5 years = $30,000 more of their money YOU are in control of.
Give it back to them and that can become their down payment for their own mortgage?

Low risk and you are in control.

 

[ponytug]

You are being very kind, and considering being even kinder. Would you gift these folks the house?

Make sure you get a real estate attorney to draft the documents, and insist on the shortest foreclosure and eviction deadlines that your state allows. Be very clear that the ownership doesn't change until 100% of the agreed upon is paid. Don't go for a percentage ownership based upon payments. What happens if they divorce? What happens if you die in the next seven years? How will your estate deal with this one off?

Some relatives did a couple of these, and every one eventually went south, and my relatives were too nice to foreclose. Lots of heartache.

Are you willing to foreclose and evict them at the first missed payment? If you aren't, I think this is a fraught monetary affair for you. Selling the house on the open market and loaning your tenants a downpayment would be a much lower financial risk to you.

I wouldn't do it. Too many ways it could turn out poorly and only one way that it would be ok. Sorry. Gold star for giving the tenants reduced rent until now.

All the best,

Peter

 

[USAFpj]

Completely understand, and this is why I am inquiring. I sure appreciate it. If I were to pursue it, I would also stipulate in the contract that any funds would be forfeited if payment ceased.

 

[Midniteoyl]

If they can afford $2150, why are they only paying $1400 now and not at least the $1600 payment?

Personally, as said above, I wouldn't carry a mortgage for someone else *unless* maybe it was a family member in dire need and I was ready to eat it all.

 

[USAFpj]

If they can afford $2150, why are they only paying $1400 now and not at least the $1600 payment?

Personally, as said above, I wouldn't carry a mortgage for someone else *unless* maybe it was a family member in dire need and I was ready to eat it all.

Ha! Yah, I was thinking about that one last night. To be honest, $1400 was an actual increase, as we had been receiving $1100 the previous 5 years...

To get something, you gotta give something- We felt that kicking in funds to our own house was still better than unknown renters, damages, property managers, etc.

I live in SC and the home is in WA, and the culture is a bit different, so the devil you know vs...

 

[Jchonline]

Completely understand, and this is why I am inquiring. I sure appreciate it. If I were to pursue it, I would also stipulate in the contract that any funds would be forfeited if payment ceased.

Do you really want to put yourself in that situation? Better to just bite the bullet now and get it done properly. Can they do a dual loan? They get 1 loan for the down payment %, then a second one for the balance of the home. Are they military veterans? they can use VA loan if so, no down payment required.

I would be more apt to loan them the money for the down payment and deal with getting that paid back than I would a drawn out 15-30 year scenario. Anything can happen. One of them might fall ill, pass away, etc affecting their ability to make payments. Do you really want to kick them out of the home at that time?

 

[Larry Caldwell]

Realize that if you croak, the next owner may not be as nice a guy. I knew a guy years ago who had sold the same piece of property three times. A purchase contract gives no more rights than a rental. One missed payment and they are out. You may not do that, but after you are gone, who knows?

I bought my current home by owner financing, but he offered a trust deed and note in return for a 30% down payment. He was offering financing only because the house would not pass a bank inspection and he was too old, sick, and broke to deal with it. I did a refi as soon as the repairs were completed.

Your tenants need to go money shopping. They can borrow the down payment. Then if you want to cut them a deal on the price, go for it.