Lease, lease-option or contract for deed?

Question

I have a rental house in New Mexico that I was hoping to be able to sell but it looks like it won't sell.  I'm leaning on just doing a straight lease to just continue holding since I can't sell it.  Just renting it out on a standard month-to-month lease gives me the most flexibility and is the least complicated.  If the market changes I can always give my tenant 30 days noticed and list it again for sale.  Where I could not do that with a lease-option or contract for deed.

The benefit of the LO or CFD is I could get a little higher monthly rent and a little more deposit.  But it doesn't seem like it's worth it with all the complexities with dealing with the paperwork and potential of default on LO or CFD, and losing the flexibility of a month-to-month standard lease agreement.

Thoughts?  This is a negative cash flow mistake rental I bought a long time ago and can't get rid of without lowering the price so much I lose my shirt on it.  I could find a LO or CFD buyer very quickly though.

Rob Cee · Answer

Thanks Anthony.  This is exactly why I'm thinking just a straight standard month-to-month lease is my best option.  I don't see a big enough gain from a LO or CFD to deal with the complexities and legalities.

Account Closed · Answer

@Rob Cee  If you are thinking of selling using a LO or CFD to an owner occupant i.e. someone who will be living in the property as their primary residence, I would highly recommend that you see a competent attorney to help you navigate the legalities of doing it correctly or even the soundness of doing it at all depending on your circumstances. Dodd Frank and the SAFE Act have made things more complicated when selling to an owner occupant. Selling to another investor who will not be living in it as their primary residence using a LO or CFD is not an issue as far as I understand it.

No legal advice offered. See a competent attorney.

Bill S. · Answer

@Rob Cee  RMLO - residential mortgage loan orgininatory

Brian Gibbons · Answer

See my acronym list on this thread. http://beta.biggerpockets.com/forums/25/topics/863...

RMLO Registered Mortgage Loan Originator, FBI Check needed.

Rob Cee · Answer

What is a RMLO?

Brian Gibbons · Answer

You can do a straight lease and straight option without rent credits and not worry about Dodd Frank. But it's not the attorney it's the RMLO you need to see in New Mexico, that will give its blessing, because the RMLO will give you a safe harbor for seller financing contracts.

Rob Cee · Answer

I'm in the far NE Heights/Academy Acres area.  I think I'm good on rental rates.  It seems like Rio Rancho isn't doing well?  I read an article in the ABQ business journal that foreclosures rates are spiking there.  Glad I didn't buy there.

Joel Belding · Answer

@Rob Cee The housing market is starting to pickup here in Albuquerque a bit. If you can manage to hang on to it for a few more years, chances are that you will start to see some good appreciation in it. Which part of Abq is it in? Rental rates are starting to rise here and maybe it is a good time for a rate increase. If you want to send me the address, I can put together a BPO for you and let you know what the average rental rates in the area are.

-Joel

Rob Cee · Answer

I might do that. I might pay off the high rate second mortgage and refinance the 1st and it would be a positive cash flow rental property.  It is in Albuquerque NM. I live in another state.  I just hate to throw all that money at a house I don't want.  But I would get a nice return by paying off the second and refinancing the 1st.  It's a good house in a good area that attracts tenants pretty fast.  The market there is just so flat and dead.  Prices are back to 2003/2004.  So it's a lost decade in terms of appreciation.  The state of NM and city of ABQ do not seem to be attracting jobs and growing like it's neighbors are (Denver, Austin, Salt Lake, Phoenix, Boise).

Joel Belding · Answer

@Rob Cee If you bought it a long time ago, can you refinance it to a lower payment and get it to cash flow? What part of NM is the house in?

Alternatively, you could try selling it on a wrap. That would give you a good down payment.

Let me know if this helps!

-Joel