When the Seller Becomes the Bank

The building and the people

35-37 Haskell Street in Allston is a recently sold eight-bedroom, three-bathroom two-family that traded at $1,149,000. The owner, who we'll call Margaret, lived in one side of it for decades and rented the other. She is in her seventies, the mortgage was paid off years ago, and effectively everything she has is sitting in the walls of that building.

The six people renting from her want to buy it, and the reason the structure fits is that it lets both sides move gradually rather than all at once. Margaret does not have to hand over the keys and leave the same afternoon, because she can stay in her unit while the building changes hands, keep collecting income from it the way she always has, and step out of being a landlord without stepping away from the property. The six renting from her get to move into ownership of a building they already live in, at a rate and a down payment that a mortgage was not going to give them.

She can sell the building and finance it at the same time, which is not something a lender is set up to do for anybody.

Deal terms

There is no bank in this transaction. There is no appraisal contingency, no rate lock expiring, and no underwriter deciding whether the group fits a template. There is a purchase and sale agreement, a promissory note, and a mortgage recorded against the property in Margaret's favor.

What moves at year one

Out · Each buyer

In · Margaret

Margaret leaves the closing table with $114,900 in hand and a $1,034,100 note secured by the building she just sold. Over the first twelve months that note pays her $66,615, of which $51,359 is interest and $15,257 is principal coming back to her.

That split between interest and principal matters because the two are taxed in completely different ways. Principal is what triggers the capital gain, and under the installment method in IRC §453 she only recognizes that gain as the principal actually arrives, so decades of appreciation get spread across the life of the note rather than landing in one year that pushes her into the top bracket and past the net investment income threshold. The interest is treated separately and taxed as ordinary income on Schedule B in whatever year she receives it, so the monthly payment is not tax-free money, it is income that shows up on a predictable schedule and can be planned around.

The monthly picture

Here is what the building costs to run every month and where each piece of it goes.

Comparable rooms in Allston go for roughly $1,250 a month, so each of the six is paying $1,156 for a room in a building they own, which is $94 a month below what the same room would cost them as renters, and every one of those payments is buying down a balance instead of disappearing into someone else's account.

She is drawing $51,615 a year net of her own housing, in the building she has lived in for thirty years, on a block she knows, without being responsible for maintenance or upkeep on any of it. After five years she moves out, stops paying rent, and the payment continues at $5,551 for the remainder of the term.

What the rate does for the buyers

The gap between 5.0% and 6.76% is 176 basis points, which reads as a rounding error on a rate sheet until you carry it out ten years and it comes to $23,255 a person, which for most of this group is more than they put in at closing.

The exit, on both sides

At year ten the group refinances into a conventional loan and pays Margaret off. By then the balance has amortized down to $841,158, the group has ten years of payment history and ten years of shared ownership to put in front of an underwriter, and the building carries whatever appreciation the market has delivered.

That $473,211 is interest. In a conventional sale it goes to a bank, because the bank is the one lending the buyers the money. Here the money being lent is the equity already sitting in Margaret's building, so she collects what a lender would have collected, on capital she never had to move, secured by an asset she has owned for thirty years.

The honest comparison is not $1,622,211 against $1,149,000, because dollars arriving over ten years are not the same as dollars in hand today, and $1,149,000 invested on day one would have earned something of its own. The comparison that actually matters at that stage of life is between a lump sum she has to manage, allocate and worry about, and a fixed payment that arrives on the first of the month regardless of what the market is doing.

The note pays the same amount in a crash as it does in a rally, and it is secured by a building she can take back if it ever stops paying.

Each buyer turned $24,895 into $143,274 of equity while paying $94 a month less than the room would have cost them to rent, and that equity is the down payment on whatever comes next, which for most people in a group like this is a house of their own.

Why this beats renting it out

The standard advice to a longtime owner-occupant is to move somewhere smaller, rent both units, and live off the income. It sounds like the conservative option and it quietly costs her money.

• The §121 exclusion runs out. Excluding $250,000 of gain, or $500,000 filing jointly, requires the home to have been her primary residence for two of the last five years. Rent the whole building out for three years and that exclusion is gone, and the gain it would have sheltered comes back as taxable capital gain whenever she finally sells.
• Rent is taxed the same as note interest, with a job attached. Both land as ordinary income, but the note comes without the work, because she is no longer responsible for maintenance or upkeep on the building. If the borrowers stop paying, she forecloses and the building comes back to her.
• Renting does not make her liquid. A landlord's equity stays locked in the building, and getting at it means a cash-out refinance she probably cannot income-qualify for, or a reverse mortgage with its own costs. The note turns that equity into monthly cash flow without asking any lender for permission.
• Liquidity is what matters at that stage. Money that arrives predictably every month, in an amount she can plan around, is worth more to a seventy-four-year-old than the same money locked inside an asset that has to be sold, financed or managed before she can use any of it.

Underwriting without the bureaucracy

None of this means the seller should skip the work a lender would do. Margaret still needs to look at credit, at income, at savings and at what each of the six does for a living, because she is taking on the credit risk a bank would otherwise carry and she should price and document that risk seriously.

What she can do that an institutional lender largely cannot is look at the group as a group. Fannie Mae's Desktop Underwriter handles a maximum of four borrowers and Freddie Mac's Loan Product Advisor tops out at five, so a six-person purchase needs a lender willing to manually underwrite, which exists but narrows the field considerably. The constraint is procedural rather than credit-based, since six incomes covering one obligation is a lower risk than one income covering it, not a higher one.

Margaret has also been collecting rent from these six people, which tells her more about how they pay than a credit score does. Put that alongside a co-ownership agreement that sets out reserve requirements, a cure period and a buyout mechanism for an owner who cannot keep up, and she can reach a decision an underwriting box would never get to, in an afternoon rather than in forty-five days.

What the agreement has to cover

• Who services the note and how one monthly payment gets assembled from six people
• Reserve requirements per owner, funded at closing rather than promised later
• The cure period and the process when someone misses their share
• Buyout terms and valuation method when an owner needs to exit early
• The refinance trigger at year 10 and what happens if rates make it impractical

The rules that govern it

• The seller has to be a person. The CFPB's Loan Originator Rule under Regulation Z excludes a natural person, estate or trust financing one property in a twelve-month period. Under that exclusion a balloon payment is permitted and the seller is not required to perform an ability-to-repay analysis. The three-property version requires a fully amortizing note with no balloon at all, which would eliminate the year-10 exit.
• The rate has a floor. Below the applicable federal rate the IRS imputes interest under §483 or the original issue discount rules, so the note has to carry a genuine rate. 5.0% clears that comfortably.
• The building has to be free and clear, or any existing mortgage has to be paid off at closing, or a due-on-sale clause gets triggered.
• The rented side has its own tax treatment. §121 covers the portion Margaret occupied. The unit she has been renting carries depreciation recapture, and unrecaptured §1250 gain is recognized ahead of the regular capital gain as payments come in, taxed at up to 25%. That calculation belongs with a tax advisor before anything is signed.
• The note is an asset with an afterlife. If Margaret dies during the term, the installment obligation passes to her estate and the payments continue to her heirs, which is a very different inheritance than a building somebody has to sell.

Why both sides come out ahead

Margaret sells the building to the six people already living in it, takes $114,900 at closing, and collects $5,551 a month for the next ten years, which adds up to $1,622,211 against the $1,149,000 she would have received in a cash sale. She stays in her unit for as long as she wants it, she stops being responsible for the building, and she spreads the tax over the life of the note rather than paying most of it in a single year.

The six buyers get in for $24,895 each, pay $1,156 a month for a room that would cost $1,250 to rent, and hold $143,274 of equity apiece by year ten. What each side is really getting is the thing the conventional version of this sale could not deliver, because she gets predictable income without managing anything and they get ownership at a rate and a down payment no bank was going to write for six people at once.

Hypothetical scenario for illustrative purposes. Property details reference 35-37 Haskell St, Allston, MA at a $1,149,000 price. Note terms assume 10% down, a 5.0% fixed rate, 30-year amortization with a balloon at month 120. Market rate comparison uses the Freddie Mac Primary Mortgage Market Survey 30-year fixed average of 6.76% as of September 10, 2026. Property taxes calculated at the City of Boston FY2026 residential rate of $12.40 per $1,000 applied to purchase price; actual assessed value will differ. Insurance, utilities, reserve contributions, and the $1,250 Allston room rent comparable are estimates. Appreciation modeled at 4% annually. All figures rounded to the nearest dollar. Borrower limits reference Fannie Mae Desktop Underwriter and Freddie Mac Loan Product Advisor documentation; manually underwritten loans have no stated borrower limit. Seller financing rules reference the CFPB Loan Originator Rule at 12 CFR §1026.36. Tax treatment references IRC §453, §121, §483 and §1250. Closing costs include 2% for HomeMates' technical assistance. Reserve fund balances are excluded from equity calculations. Not financial, tax, or legal advice.