Welcome to Real Deals! It’s always easier to learn from real life so here we share information from actual owner financed transactions. It can be challenging to obtain non-recourse loans necessary to finance the purchase of real estate in an IRA, 401(k), or other type of self-directed retirement account. Seller financing can be a viable alternative financing solution.
The seller owned several small condo units in TX listed for sale at $64,650 each. The properties generated rental income that exceeded expenses and debt coverage. The positive cash flow made the units attractive to a local real estate investor that viewed the real estate listing.
The experienced landlord desired to purchase several units as an investment in his Individual Retirement Account (IRA). By making the investment in his IRA all income and profits could be tax deferred with a Traditional IRA or even tax free with a ROTH IRA. The IRA was facilitated by a custodian, which allows self-direction of funds. All income and all expenses were deposited or paid through the IRA account to preserve the tax-advantaged status.
The seller and buyer agreed to a sales price of $64,650 with a down payment of $12,930.00 at closing. The seller carried back the balance of $51,720 in an owner-financed note, deed of trust, and warranty deed with vendor’s lien. The interest rate was 11% per annum with payments of $492.54 per month for a 30-year term.
The seller collected one payment and sold the 359 remaining payments to a note investor for a purchase price of $45,850.00. The buyer and seller facilitated two sales with duplicate terms through the same type of temporary owner financing with payments sold to an investor.
Real deals are based on actual transactions completed within the past ten years. Market conditions change frequently resulting in pricing and underwriting changes by note investors. Work with qualified professionals when creating new notes to obtain accurate and up-to-date pricing and investment parameters.