to rent or not to rent

7 Replies

We bought a flip house last fall and did all the repairs through the winter. This is the Midwest so there is strong seasonal buying (unlike Arizona, etc.). We put the house up for sale this spring and have had only one offer! The obvious conclusion to jump to is that the price is too high. However, the house shows very well and the comps and the showings' feed back don't show the asking price is off the mark. The point is that while we just lowered the price again, we don't want to carry this house through the winter and wait till spring to start over. Its listed for $132,500. Does it make sense to do a land contract and rent it out? My partner put up the $$$ and I did all the upgrades. I can get a loan for 70% LTV, which is not enough to by out my partner. Does anyone have any suggestions for the right next move?

@Andy V. What would it rent for? Welcome to BP as well! I'm sure you can find everything you want to know here.

Likely $1,100 or so.  That's what I have heard not having spent a lot of time exploring that yet...........

Hi @Andy V.  Bummer your flip is turning into a long-term lingerer.

How close to buying your partner out will 70% LTV be? Selling on a Land Contract or renting it out won't get his money back, either. I would ask and get some feedback.

Your primary options would be:  Sell on a Land Contract (or some method of owner-finance), Lease with Option or rent it out.  What do you think it will rent for?  

Again, see what your partner says he would like.  I would guess Land Contract = 10% down payment, Lease Option = 5% Option Consideration.  Good luck!  

We have about $107,000 into it including utilities, insurance, lawn maintenance, repairs/upgrades, etc. 70% LTV would get me $91,000, not enough to pay him off in full. That's the problem..........

Andy,

We have stronger seasons than other here in AZ in certain market segments. The snowbirds tend to affect certain parts of town. As for your situation, how are you marketing it? Do you have a realtor because they can get you into the hands of many more buyers. Have you analyzed the deal to see what a good return would be? In a lease to own you can demand higher rents and that may help. Are you able to refinance the property through another private lender that may offer a 3-5 year term?

Originally posted by @Andy V. :

We have about $107,000 into it including utilities, insurance, lawn maintenance, repairs/upgrades, etc. 70% LTV would get me $91,000, not enough to pay him off in full. That's the problem..........

 Will he take the 91,000 and take a split from rent profits after all expenses are paid?

We have a realtor and it is listed on the MLS. The notion of splitting profits after expenses is something we have discussed. Obviously he doesn't get his money back quickly, and that may be OK. If we decide to do a land contract, its my understanding to always keep the lease option agreement separate from the rental agreement to keep us from having to foreclose on (vs evict) the tenant should they get behind in payments. The option also has to be "bought" for the right to purchase for the one year period, right? And then purchased again for the following year should they chose to stay and still not buy the house? If so, how much does one typically charge for the option? 10%, 7%? Also, for the rent side of the equation, is it normal to get the first and last month's rent plus a security deposit up front, in addition to the option payment? That seems steep...........

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