Did you get an email from one of your tenants that asked, “Would you consider selling?”  It’s not uncommon for tenants to finally decide it’s time to buy and the property they pick out also happens to belong to their landlord. For whatever reason, the notion suddenly popped up and now you’re consideringprivate mortgages the possibility.

Seasoned real estate investors know that buy and sell opportunities aren’t always planned out. Perhaps an unnoticed home a few blocks away suddenly comes up for sale at a bargain price and you snatch it up with a full price offer. Or, one of the units you own has received an unsolicited offer strong enough that you must consider the query. But today’s email did catch you a bit off guard. Would you sell?

Sure, if the price is right it’s always time to think about selling. Yet many times an offer from a tenant also includes a follow-up email, “Would you finance the purchase?” Now, that’s a whole other dynamic. Seller financing can provide solid returns secured by the property. But financing for the long term may not be the best option. Instead, find out why the buyers need or want seller financing. If they need some time to clean up the credit or they’re newly self-employed and the bank won’t yet finance them for another two years, consider writing up a two or three year note with a balloon payment.

Such a note should require a sizable down payment, at least 20 percent. More if you can get it. The interest rate on the note should be above market as well. Get your attorney to help with the legal work and mortgage paperwork but the most important aspect is a clear understanding that at the end of the loan term, the loan is due in full. If the tenant’s qualifying issues are reasonable and you can see an exit strategy, providing short term financing is a nice way to earn substantial returns for a shorter term and if something goes afoul, you not only have the down payment in your bank account but you can recover the property through a foreclosure as well. You don’t want that, but that’s the security of investing in real estate. It’s there is you ever need it.