Subject 2 on my house.

6 Replies

I currently have a house in Halifax,NS that I am renting out that is not cashflowing. Long story short. Bought a place with a in law suite (not set up for a multi) was living there with family and after couple years that [email protected] out. Had to move out and couldn't sell it quick so rented it out to cover the basic costs. (Had no idea about cap ex, maintenance, vacancy rate and what not)

The current tenants want to purchase the property and I want out before major costs come up that become painful to afford. They don't have very good credit. Have been thinking and reading different books and the best thing I can think of is a subject 2. I have to do more research on this subject as I haven't read anything on it for a while.

My knowledge as of now and I could be very wrong is. The title goes in the tennant's name and they take over the mortgage payment, taxes and everything to do with the property. Say the property has $165K owing on it and your're selling it for $205K. They have to pay me the $40K difference or I can get a 2nd mortgage for $40K and have them pay both and I get the equity of $40K. They get the property with no money down and cheaper then paying rent. I then put a lien on the property for $205K until it's paid off so if they don't pay I can take the property back. Not sure if I have to keep my own insurance on the place bit I wouldn't think so.

That is my knowledge on it so far. If I am wrong on any parts, please let me know as I am looking to learn about this as much as possible and to make this happen.

Would also love to hear any success or horror stories that people have with this. For anyone that replies, thanks in advance for taking the time to read this and reply to this with you own thoughts and have a great day. :)

@Brandon Ramsay I wouldn't recommend selling your house subject-to to tenants with bad credit.  If they stop making those payments, then the foreclosure would ruin your credit.  You could consider selling it to them on a land contract, if you have those in Canada, or rent with an option to buy.  Part of the option price is that they maintain everything for the property.  Then, when they have repaired their credit and can refinance the property, you can transfer it to them at that time and have your loan paid off.

I agree that a lease option is likely your best bet unless you feel it would sell more quickly on the open market (although likely would be better vacant than with tenants in place).  Refinancing would usually require you to certify you are not selling the property or transferring ownership, and it's hard to get a cash-out refi on an investment property for more than 75% of appraised value, so if it's worth $205K, it likely wouldn't be possible if you already owe $165K on it.  You can ask for an earnest money deposit in addition to the security deposit, which would be non-refundable should they not buy the home, then set a term, like they'll buy it within 18 months, and set the lease up where they're responsible for all maintenance and repairs moving forward, although to protect yourself you should likely state no major changes or purchase a home  warranty on systems and appliances and have them responsible for the copay until after they close on the home.

@Lynn M. Gonna look into the lease option more now. Putting a couple heat pumps in the place too now so that will definitely help out. Will probably have to replace the roof before sell it. Gots a good few years left but is getting bad. Can do it myself so it's just material and a weekend. Long weekend 😝 haha. Any advice on lease options or articles or books to read?