Types of contracts

Traditional seller financing with interest

• Purchase Price: $550,000 – $600,000.
• Down Payment: Sellers usually require 10%–20% down ($50,000–$120,000) to ensure you have equity at risk.
• Interest Rate: Typically 5%–7% for seller financing.
• Balloon Payment Structure: Sellers rarely want to wait 20 or 30 years to get paid in full. Instead, seller financing is often structured on a 30-year amortization schedule with a 5-year or 10-year balloon payment. This gives you 5 to 10 years of fixed monthly payments to build equity, repair/build credit, and then refinance into a standard bank mortgage to pay off the remaining balance.

Lease option / lease purchase agreement

• Rent Agreement: You pay fair market rent (e.g., $2,250–$2,500/month).
• Option Fee: You pay an upfront non-refundable option fee (typically 2%–5% of the purchase price) for the exclusive right to buy the house at an agreed-upon price (e.g., $525,000–$550,000) within a set timeframe (e.g., 3 to 5 years).
• Rent Credits: A portion of your monthly rent payment (e.g., $250/month) can be credited toward your purchase price at closing.
• Maintenance: You can contractually take over routine minor repairs/maintenance in exchange for the fixed purchase price locks.

Compare

What these would look like for us

Seller financing

• purchase price: 550k
• down payment: 50k
• loan amount: 500k
• Interest: 6%

So we pay 50k up front, then our monthly P&I payments will be 3k a month for 5 years. Over time, priciple goes up and interest goes down to keep in 3k a month.

Year 1: You pay ~$29,600 in interest and ~$6,330 in principal. Year 2: You pay ~$29,200 in interest and ~$6,720 in principal. Year 3: You pay ~$28,800 in interest and ~$7,140 in principal. Year 4: You pay ~$28,400 in interest and ~$7,580 in principal. Year 5: You pay ~$27,900 in interest and ~$8,050 in principal.

The 5-Year Totals: Total paid to the seller over 5 years (P&I): ~$179,865 Total Interest kept by the seller: ~$144,045 Total Principal paid off: ~$35,820 Remaining Balloon Balance owed at Month 60: ~$464,180

then, after 5 years, we need to get $464,180 to give to the landlord

But casey, thats a lot of interest! what if we want to buy it sooner???

Prepayment Clause: the contract explicitly states that there is no prepayment penalty. This allows you to pay off any extra principal whenever you want, or refinance with a bank at month 12, 24, or 36 without incurring fees.

So, if we can get the money earlier, we benefit to buy it earlier

for example, lets say it only takes us a year to get financing: we pay 50k down 3k a month, ~$29,600 in interest and ~$6,330 in principal. total of 36k that first year. At the end of the year we owe $493,670, and at the end, we got the house for ~$580k

Only thing cheaper is to get the money up front and just pay 550k for the house, but we cant do that on short notice, as i cannot qualify for a mortgage right now.

So how expensive will this be with everything?

we normally spend, conservativly, 3500 a month. -2250 for rent, thats 1250 for 4 people for all household purchasing and utilities, so without rent, 312 a person, call it 400 a person, for 6 people, would be 2400, so call it 2500$ a month.

that means if we had 6 people living at our house, we would need to make 2500+3500 a month, so 6k a month as a household. in lexington, there is no place you could live fully for 6k a month, so even with boosted numbers, this is doable for us. 15$ 20 hours a week after tax would be enough to afford to live.

alternatively, we need 72k a year after tax may makes 10k a year (800 monthly), i'll make 20k as a TA (1600 monthly), so as long as the other 4 people in the house could scrape together 42k a year (3.5k a month), we will be ok

After we pay off the place, monthly payments for 6 people will drop to 3k plus any new expenses that show up with financing. If we do standarm morgaging, it will be roughly 3k to the bank, so nothing changes

Concerns

Investment Model

Radish LLC is a working community that uses this model. they are a bit bigger than our one house, so they have a lot of contractual agreements in place to keep everything perfectly legal and safe for everyone, and we might do that one day, but here I will just talk about the basics.

There are residents and there are owners

Residents live with us, they are the people at the house. Owners are the people who put money up front to help us. If someone puts up money and lives with us, they are both.

Owners have no authority over residents. There is no power dynamic. you can live here and not own the place, and thats normal, nothing will change. If you are an owner, you just get to help make owner decisions, such as refinancing the place through a bank or something, but in our case, there are not a lot of owner decisions.

Why would someone want to be an owner?

Its an investment. We, as a household, can make money monthly, just not lump sums. So, in exchange for giving us roughly 500k, we will give them back monthly dividends with an anual return of 5% on their investment.

this means, if we raise 500k, we will give back to those investors 25k a year, or roughly 2k a month.

Lets do a breakdown that i think is likely if Jeff moves in with us: we need to raise 500k, so we go out and go to the people that trust us to pay them back (and if we get serious, this would be contractually)

By the time we get the investment and are dealing with paying ROI back to investors, we will own the property and have used the up front money to pay of the lien. with a monthly cost of living with utilities at 2500, insurance and property taxes and 500, and investor payback at 2000, our monthly cost to live for 6 people would go to $5000! lower than we were paying in principle and interest.

how does it work that im an owner and resident?

I, as a resident, will still pay my share of the 5000$, as how much people pay is calculated first. After that, we then pay back investors, and i would put $200 back into my bank account. alternatively, i could just pay $200 less, but you get the idea.

Being an owner will not put me in any sort of status over anybody. Im an owner, so i get returns on my investment, and thats it. Decisions that affect residents are for residents to decide, not owners. Owner decisions would be like refinancing the house or deciding to buy a second house and get more people. resident decisions are anything that affects how we live. So, in this model, life would not change once owners are established, the only change is things get cheaper

how does this work long term with jess wanting to own the property?

Anyone can buy out owners. if jess came to me with 50k, i could sell her my ownership, and she would be a 10% owner. she could go to owners over time and buy percents at a time, slowly lowering her monthly payments. Eventually, she will own 100%, and there will be no more monthly payments to make as the house will be fully paid off.