I own a rental property but am in the process of moving to another state (currently in East Texas and moving to Northwest Georgia). I've owned the house for a little more than a year and it's paid off because I did a cash out refi on my primary home.

My renter asked about the option of buying the home from me through an owner financing agreement but I don't know much about that aside from a google search.

The house is a 3/2 and I paid $153k for it and have put about $20k into it. I don't love the thought of managing a rental property from afar and have considered a property management company but I realize they would take 10%. Current rent is $1,300

Any thoughts on this?

The default answer is talk to an attorney. My personal opinion, no expertise at all, is go property management route and capture increase in market value to offset the management fees.

victory lapper said:

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I own a rental property but am in the process of moving to another state (currently in East Texas and moving to Northwest Georgia). I've owned the house for a little more than a year and it's paid off because I did a cash out refi on my primary home.

My renter asked about the option of buying the home from me through an owner financing agreement but I don't know much about that aside from a google search.

The house is a 3/2 and I paid $153k for it and have put about $20k into it. I don't love the thought of managing a rental property from afar and have considered a property management company but I realize they would take 10%. Current rent is $1,300

Any thoughts on this?

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I can't really give my opinion on the math as I don't know the current value of the home. Also you need to consider your unique situation in regards to the tax implications.

If you decide the seller finance route, please do yourself a favor and use an RMLO. You want to make sure your note is "marketable" should you decide to sell it. Make sure they put at least 10% down. My 2 cents from a guy that's done about 100 of them.

My usual thought is that if a bank won't give him a loan why would I. Then I try to make the framework that makes it worth taking on the risk and they wouldn't do the deal.

The current value of the home is estimated at $175,000 according to my realtor.

I've also wondered if I should put the house up for sale and market it as an "investment property with renter already present". In my head that would attract someone looking for an investment property that is essentially turn key. But I'd love to hear thoughts on that.

What's helpful is the lease ends in late April so I could just tell him I plan to sell the house and either give him the chance to buy it or ask him to move out so I can sell it empty.

Nm

Market still hot and lease ending in April is perfect time to get in there and have a full clean done and whatever necessary maintenance to make it ready for the market during buying season.

However, if they want to renew, increase the rent by 5% and you will be able to continue to cash flow it. Finding good, timely paying tenants is the biggest hurdle in rental property and if they renew then no need for property manager. I am sure you already have trade contacts to handle maintenance items as they come up and there are a lot of ways to collect rent via online pay with inexpensive fees like landlordstation.com. Handling maintenance and collecting rent/getting it into your bank account are the other things property managers do - these things could be done by you as well. My 0.02

Definitely get an attorney.

After thinking about it, I don't think I'd recommend a lease purchase (what my original post said). Not enough upside for you even if it worked out perfectly. Too much risk and not enough gain.

I wouldn't carry a note on the property unless you're local. Why? A savvy buyer who knows you probably aren't taking the time to report him to credit agencies can really screw with you. From Georgia, you'd have to constantly hire attorneys to file for foreclosure and eviction and he could cure at the last minute to stay where he is. You might recover those costs eventually but you'd be out them initially.

Would *I* carry a note on a property? Sure, especially if I had multiple ones in the same area. But I can do all that work for "cost" and quickly. You're not going to be able to sell his note, in most cases, unless it conforms to secondary market standards, which if he met those, he'd get regular financing anyway.

I would look at what happens if he declares bankruptcy.

BO297 said:

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I would look at what happens if he declares bankruptcy.

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First liens are first to be awarded in bankruptcy. It's actually not that hard, just takes time

Yea just time but living rent free. How long? 12 months? 18?

SteveBott said:

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Yea just time but living rent free. How long? 12 months? 18?

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Depends on jurisdiction and savyness of borrower. Could be 90 days could be 18 months

I have been working on seller financing some land. Can you recommend an RMLO that you've worked with? Thanks!

What would concern me most is if they started a huge reno project, didn't finish it & just moved out. Yes, you'd get the property back but in a lot worse shape. This happened to my parents years ago.

You've chosen the hardest way to make money in real estate. You get all of the headaches of renting and non of the benefits of selling. Your risk better include that.

My granddad used to build small houses on a property of his. Would build one about every 9 months and he'd do an owner finance. He knew he was going to have headaches and they would ultimately not pay and need to get evicted.

I would recommend having that expectation and be pleasantly surprised with anything better than eventual eviction.

Jester55 said:

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I have been working on seller financing some land. Can you recommend an RMLO that you've worked with? Thanks!

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I know we have used Sarah Montes with Texas Pride in the past. I'll get with my processing team to see who else we have used as well.

Your post mentions owner financing, then there is discussion of a property management company, etc. On an owner finance, you are the bank and not the landlord. The buyer is the title owner to the property and you have a lien (deed of trust) that you can foreclose if the note isn't paid according to its terms. As one poster mentioned, bankruptcy isn't necessarily a big hindrance to these types of transactions in Texas as you would be the first in line. A rent to own is a whole different transaction.

Owner finance transactions happen all the time. In your situation, you would need to consider how much down you would require to make sure the buyer has enough skin in the transaction to not walk away, trash the property, etc., and the additional terms (rate...) that meet your preferences.

If you are considering letting the tenant sign a renewal, make sure you have terms that will enable you to show/sell the property as you see fit. Often in residential transactions it is preferable to not have a lease in effect at the time of the sale. Best of luck.