Rental to Owner Finance?

[USAFpj]

The other question - what is the difference between our current rent scenario, and the scenario where 'rent' is now simply increased?

If they die, the situation is no different than if they were renters. We help pay our own mortgage until they move.
If I die, the mortgage is still in our name, and my wife still receives checks.

People die and extreme cases happen- but at 47, this may be less likely. I'm not debating the wisdom here, just seeing where my logic is flawed..

 

[Carl_NH]

You are effectively the bank, so you need a reasonable interest say 3% and a contract stipulating terms and default clauses. if you sold the property today you would have $200K free and clear to invest even at 5% that's $10K per year (or $150K clear in 15 years) w/o compounding, so in 15 years that would net at least $350.

Also you are locking in the price now, and foregoing any future real estate value - it could be worth $600K in 15 years. So you need to protect you first.

You can find these calculators on line - but this example is $2700/month for 15 years at 3% which is a nice deal and you get $100K in interest.

Microsoft Excel Mortgage Calculator With Extra Payments

ENTER VALUES			LOAN SUMMARY
Loan amount	$390,000.00​		Scheduled payment	$2,693.27​
Interest rate	* SEE CURRENT *	3.00%		Scheduled number of payments	180​
Loan term in years	15​		Actual number of payments	180​
Payments made per year	12​		Years saved off original loan term	0.00​
Loan repayment start date	2/16/2022​		Total early payments	$0.00​
				Total interest	$94,788.31​
Optional extra payments	$0.00​		LENDER NAME	Your Bank

 

[USAFpj]

Thank you, Carl. Those variables are the real question, huh?

I see the interest potential, but if I were to sell the home outright, that lump sum would not sit in an account, it would pay off all current debt. Additionally, that home could be worth $600k, but it could also be worth $250k with the way the market is- I almost feel that we should strike now, rather than wait to see how much higher the values could go..

 

[Midniteoyl]

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.

There's something to be said about that. I left a renter in my duplex at original rent for 9 yrs because he was a good renter. Though I did call on him a couple times a year when I needed help, like stacking firewood

Just actually noticed your name as well

 

[MossRoad]

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.

If you sell it outright for $450,000 and put that in modest investments, you could get close to $1.5 million in 15 years at an average rate of return of 7% annual. Of course, that's not guaranteed, but it's an historic average.

I know you're trying to do the right thing, for the right reasons, for the very nice people. That's commendable and I congratulate you for that attitude.

On the other hand, take the emotion and sentiment out of it and it's a business deal. Nothing more. Nothing less.

Good luck with your decision.

 

[MossRoad]

Also, what about selling it to them on a land contract? They make payments for X number of years. If they default, the property comes back to you. If they fulfill other contract, they take ownership of the house. Might be worth looking into.

 

[Torvy]

What part of Washington? I have a few nieces and nephews in the Seattle area that would be happy to find a decent house. All solid citizens with money and good jobs.

USAF in SC? My brother retired out of Shaw.

 

[USAFpj]

Torvy, I was born near Myrtle Beach AFB, but my extended family has lived in the upstate for 7 generations, now. This second home is in Vancouver.

Moss- what you're suggesting is more inline with what we're doing than what I titled "Owner Finance". I see them making consistent payments until the agreed amount is met, and the contract would state the details. Remember, too, that $455k isn't free and clear- maintenance, realtors, taxes, etc... But I hear ya.

Once again, this site has been overwhelmingly helpful.

 

[MossRoad]

Torvy, I was born near Myrtle Beach AFB, but my extended family has lived in the upstate for 7 generations, now. This second home is in Vancouver.

Moss- what you're suggesting is more inline with what we're doing than what I titled "Owner Finance". I see them making consistent payments until the agreed amount is met, and the contract would state the details. Remember, too, that $455k isn't free and clear- maintenance, realtors, taxes, etc... But I hear ya.

Once again, this site has been overwhelmingly helpful.

Not sure about the maintenance comment. If you sell a house outright, there's no maintenance. Many people are selling their houses with no conditions. No inspections. No repairs, etc.

Anyhow. It's all very interesting and again, good luck to you..

 

[LD1]

Basically if you go through with what you propose.....you are selling them the house for $300k and playing banker.

If the house is potentially worth 450k.....do you like these people enough to gift them 150k over 15 years? If the answer is no.....then list the house and make them get financing. If yes....then proceed the way you are planning