[Bonnie]

I have a house that has been a long time rental. I’m thinking about selling it. My renters (who have been great) are interested in buying it.

I’m looking for the pros and cons of selling it “seller financed”.

I’ve been reading up on it, but would like some real life pros and cons.

[Beth]

Whatever you do, give them some credit for being longterm renters, and what they’ve put into it.

[Troy]

I have done it, great way to make additional monies. Make sure they put enough down payment to lower your risks, at least 20 %.

Also interest only payments are much easier for accounting purposes, have a short call date like 3-5 years.

[Katie]

Hire an attorney that knows Dodd-Frank rules and hire a servicing company to manage the account.

[Deb]

In regards to possible future foreclosure you can avoid that by adding a confession of judgment to your seller financing agreement.

Put in 60-90 days.

[Kyle]

Cons:
Having to foreclose should they default can be costly. And in that instance who knows the condition they will leave your home. It may cost quite a bit to get it market ready again.

No immediate access to the full sale price like a traditional sale.

Do you have a mortgage on it? It may trigger the “due on sale” clause, meaning they’ll want full repayment immediately.

[Kevin]

Pro: delay (kind of) capital gains. You only pay what you receive that year

If you sell at regular market value you save commissions
You, likely, will get a lot more in the end due to the interest being charged

Make money without having to manage the property

Cons: you have to be the bank; definitely hire a servicer so you don’t have to learn and stay updated on the laws/regulations of the industry

You don’t get all your money in a lump sum
Foreclosure risk, but having a good servicer will help with this

[Serena]

Pros – Less capital gains tax because you will be spreading it out over years, if they default you will get the house back.

[Lynch]

Cons – You have less immediate capital to work with since you are loaning the money, however this can be negated with a high interest rate.

[Jake]

It could work out well. Or you could end up having to deal with repossession which sucks.

If you owner finance you might want to set a higher price and market or even just under market interest.

Then you’ll get more payout if they refinance, or you keep the deferred capital gains position.

Probably the biggest benefit is spreading the gains out instead of needing to take the full amount in one tax year

[Suzi]

Pros: less fees
Make sure to use a real estate attorney or escrow depending on the state.

They will make sure all needs are covered and documents signed and filed.

[Lindsey]

My parents thought about doing this but instead just sold to the tenant below market to give him credit for all of those years of rent.

As their child, I was not looking forward to inheriting what seemed like a messy situation (they were not planning to use a servicer).

[Steve]

Are you saying that the interest you will be getting is higher than a long term return on S&P500?

Why not just take the lump sum and put into stock market index?

[Theresa]

Use attorney
Agree w pros and cons above
U r bank if default

Foreclose and still own house, write off expenses

[Author]

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