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Sell Home To Rent Back

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Eric Hartmann

Montreal,

Apr 15 '12, 08:38 PM


Hi,

Im new to this forum and hope I'm posting in the right section.

My real estate agent listed my home on MLS in Montreal Canada for $378,000. I would like to sell the house to a property investor who will rent it back to me. My motives are to sell the home to fund a dream project of mine. My other option is to sell the house and move into a rental, but I would prefere to rent my house back, which will save me a move.

I saw comparable homes nearby renting for between $1600 and $1800 a month. Is this a reasonable rent price for me to ask for? I would sign a 1 or 2 year lease, cover utilities and grass & snow mainteneance.

My real estate agent never sold a house as a rental before. My house is listed in the MLS residential section. So far only couples and families have visited my home. I think listing it in the commercial section would attract real estate investors, but my agent thinks that since my home was never rented out, it cannot be listed as a revenue property in the commercial section. Does this make sense? Where should I market my home?

Any advice or comments are welcome here. Thanks!



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Apr 15 '12, 09:40 PM
1 vote


Moved to a better forum for your question.

As a potential rental property, this is not only a bad deal, its a truly awful, horrible deal. I won't say you can't find someone to buy a deal like this, but, frankly, you're looking for a complete idiot to buy your house.

I don't know exactly the terms an investor might pay in Canada for a rental, so I'll use US terms. They can't be radically different (i.e., better) or investors would be snapping up properties in Canada.

An investor would have to put about 25% down, or $95K. At 5% and 30 years, the principle and interest on the new loan would be $1522 a month. That doesn't include taxes, insurance, property management, maintenance, capital or vacancy.

A old school rule of thumb for rentals is that the monthly rent has to be at least 1% of the purchase price. In reality, that doesn't work very well, and, at your price point, 1.5% is what's needed to be profitable. Now, lots of people buy for reasons other than cash flow, such as appreciation. But the rent you're proposing is way out of line with the purchase price.

In many areas, the ratio of rent to price you're hoping for isn't unusual. Lots of properties are like this in California and New York. In these cases, people are expecting appreciation and are able to suffer the negative cash flow needed to hold the property while that's happening. Unfortunately, that was a lot easier during the bubble and is now going to be a hard, long slog.

Realistically, you should just sell your house to whoever will buy it. If you can truly rent a similar house in your same area, then find such a rental after you sell. If you limit possible buyers to ones who will rent it back to you, you're cutting your pool of prospective buyers by 99%. But if rentals similar to your house are available then you've already found the sucker who bought a house that doesn't generate enough rent to cover their payments.

Or, you may have to choose to live in a different area. Sometimes dreams require us to make choices.



Jon Holdman, Flying Phoenix LLC


Jeff Thompson

Shasta Lake, California

Apr 16 '12, 12:48 AM


I'll second Jon, that's a horrible rental. There may be homes for rent similar to your home, but I'd bet they weren't bought with a rental in mind or if they were it was at a time when prices were different or the 'investor' didn't know any better. Your best bet is to tap your equity (if you have any) with a HELOC/refinance to stay or Sell and move.

I was earlier looking at this problem that places I want to live are bad investments for cashflow, but factoring in deductions and such it's still often cheaper than renting living there yourself. If the difference is less than you can make by investing in a few cheaper homes that make good rentals then it may make sense to move. If not your better off staying put. You'd have to run the numbers to see what the difference is, then decide if it's worth it to you.



Eric Hartmann

Montreal,

Apr 17 '12, 03:44 PM


Thanks Jon and Jeff for your input. It really helps me to see how others value a rental to see if my idea is any good or not.

Montreal real estate prices are still hot for now. I bought my home in 2007 for $215,000. I completely renovated it and spent $50,000 plus a lot of my labour fixing it up. So in 5 years I stand to gain close to $100,000. Some areas in or around Montreal have done even better. Some think the housing market may cool down, but so far the economy hasn't been hard hit like in the U.S. and people still have a positive outlook in Montreal.

I feel that an investor would partially buy my house for the potential property appreciation and for a trouble free property. I say trouble free because it's fully renovated, I am handy, I do the outside maintenance and have credit with the bank. Also, the investor doesn't need to look for a tennant.

That said, I see how the rental income is low and can be bad for an investor. The other houses I've seen at low rents were probably bought around 1999. My house was worth only $110,000 back then. The Mortgages are probably almost payed off or verry low on those homes and the owner may not be ready to sell it yet.

I just thought it was silly for my to move if I can save the move. On the other hand, I don't want to limit my potential buyers by 99%. I guess to follow my dream I may have to sell and move after all.

If anyone has other ideas or input, it would be great! I like learning and to see how other people think and invest. This is a great forum!

Thanks!



Eric Hartmann

Montreal,

Apr 22 '12, 05:03 PM


Someone suggested that I look into companies that do "rent to own" arrangements. Does anyone know how this works? Under a rent to own option, do I sell my home to a finance company that would rent it back to me? Does rent to own sound like a viable option in my situation? Thanks!



Scott Grace

Real Estate Broker from Halifax, Nova Scotia

Apr 24 '12, 05:07 PM


MLS rules in Canada state that you can only list a commercial property as commercial and it would appear on the ICX.ca site for commercial listings. Get your agent to put the situation in the property overview and it will weed out families looking for their own accomodations and get your agent to contact other agents and let them know about your situation so they can tell their investor clients. Best of luck!



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