Landlording vs. Seller Financing

[Mark Allen]

I'm currently in the Dallas - Ft. Worth market - I haven't been investing long (since 2009), but recently I've been turning my rentals into paper via seller financing. Many of these properties have mortgages with less than 20% of equity, and one is paid off. I can make $200-$500/month in cash flow by converting (or wrapping) these properties, put a 3rd party loan servicing company in place, and NEVER have to deal with tenants again. 

Example - I had one property left in Austin. $150k principal balance, 3.5% fixed interest, $1050 PITI, $1350 rent. Property taxes were on the rise and eating my cash flow. I decided to wrap this mortgage as to not have to deal with tenants or the increase in property taxes. I sold the home for $205k (market value was $195k), $15k down, 6% fixed, 30-years... I now am cash flow positive $450+.

I'd like to hear why others (not just DFW market, but Atlanta, Phoenix, Nashville, Memphis, etc.) choose to be long-term landlords and deal with tenant screening, repairs, vacancies, etc. (with or without a property manager). What are the positives and why do you choose to be a landlord? What are your concerns about seller financing and turning into the bank?

[Steve Vaughan]

I like your business model as an exit strategy @Mark Allen.  Dodd-Frank and the Safe Act has added a few layers of risk to the lender on owner-occs, but for someone wanting out of the LL thing, I like it and have done it before as well.

For me, it's taxes and lack of control being the big barriers.  I've turned a highly tax-advantaged, passive income investment into interest (ordinary income) cap gains, and dep recapture.  

There are also a lot of headaches inherent with wraps (how do we split up the 1098 bank interest or deal with insurance and DOS issues to name a couple). I also no longer own the asset and need to foreclose in case of default.

If exiting during a soft or stagnant market, I will consider SF I am sure.  In a frothy seller's market like now, I would rather 1031 and delay  (or forego entirely) the tax hit and reset depreciation on my older properties. 

To reduce management headaches almost entirely on my houses, I offer 2-yr lease options to well-qualified, ownership-minded tenants. The almost readies. I then sell conventionally and need no magic at tax time.

Good idea and good discussion!