Good morning Bigger Pockets,
I have 2 clients in Dallas, Texas area interested in renting a home under a rent to own agreement. Their maximum rent is $1900/mo & $1800/mo and they would like to be moved by 4/15/21 and 6/1/21 respectively. I have found 6 properties that meet their criteria and I am looking for funding options for this situation. If you are interested in investing or have any information that would help us move forward please feel free to contact me so we can discuss more details to see if it makes sense and decide on the best strategy to seal these deals get them moved in their new home. Thank you for reading!
Updated about 2 months ago
Will not be doing lease to own as I just learned that is not an option in Texas but would still like to get 2 properties under contract and hold until the occupants are ready to buy. I'm also interested in wholesaling this deal to investors not interested in a partner up.
For the most part we don't really do Rent to Own, Lease to Own, Lease Option or whatever you want to call it in Texas.
Most of the good real estate attorneys advise against this type of transaction. It's just too hard for owners to follow the laws regarding this. The legislature here basically outlawed about 10 years ago.
If they're not ready to buy, then just have them lease as cheap as you can, bank up money until they are in a position to buy.
Hey Bruce thank you for sharing that information! @Bruce Lynn
@Dracy Campbell I'm a little confused by what you mean get it under contract until they are ready to buy it? Are you planning to have a property under contract for a year or two?
I don't believe this market that is even remotely possible. Or am I miss understanding?
Also how are you going to wholesale the deals to an investor if they tenants are planning to buy the homes?
I am just a little confused.
@Alex Grosvenor Alex thank you commenting. Yea I found out that “rent to own” is not an option in Tx but I was saying that the properties could be purchased with a mortgage, cash partner or private lender then rented to the clients until they are ready to own then the properties could be sold to the renters(if that’s a legal) or I was thinking if an investor in the Dallas area would be interested I would find the houses & the. wholesale the property’s to the investor with renters ready to move in. Did that help clarify? If so do you think either of those strategies make sense?
I understand what you are saying, but as an investor why buy a house and rent it out for two years to then sell it to the tenants?
If it’s going to cashflow most likely the investor will want to keep the property for their rental portfolio. If it doesn’t cashflow then it’s pointless for the investor to buy it in the first place because he would be breaking even or losing money. Which unless you plan on holding for a long time doesn’t make any sense.
If you found the property and sold it to the investors with tenants already ready to move in the same problem would arise down the road. Either it’s going to cashflow and they are going to keep it. Or it’s not going to cashflow and people won’t buy it. Or the person who buys it as it’s not cash flowing is going to want to buy it hold for appreciation years and years down the road.
I just can’t see a scenario where a investor buys it and with the intention to sell it a year or two later. MOST investors hold for long term.
I think your best bet to make a profit is to refer the people to someone to get them into a rental and you make a referral fee. They will most likely have to re evaluate their plans of how they want to buy especially in this market.
@Alex Grosvenor I completely understand what you mean. It’s going to take a diverse investor for this one. Thank you for the suggestion! I will definitely consider.
Based off of your experience in the industry do you think this type of deal would interest a cash/silent partner or private lender that invests in both flip type deals and long holds? That’s assuming that the properties cash flow well and also appreciate while held.
A steady cash flow with the potential for increased property value seems great for an investor that isn’t local and isn’t interested in utilizing a management company long term or at all.
Would that be worth consideration or do you think the fees and closing cost from a sell would potentially diminish gains?
Hey @Lucia Rushton they are in the process of rebuilding their credit. It’s two house holds that are family. 1 family is military and both are around mid 600s and still in school so they are worried about getting in over their heads at the moment. They expressed that they would like to ease into things as they transition into becoming homeowners
@Dracy Campbell It would be a risk. The investor would be betting on appreciation to go up AT LEAST enough to pay 7.5% on closing costs and realtor fees on the back end alone then another chunk of profit gets taken away from capital gains taxes from their profit as well. I can't see a seasoned investor doing it. Not to say that no one will. It would just have to take a special circumstance.
Thank you I needed that info to help me clarify and better understand how this could play out. Have you worked with any mortgage brokers that lend to buyers with average scores? @Alex Grosvenor
I wouldn’t do it. I’m not sure if there a personal connection for you on this one, and there may be because otherwise I don’t see why you would pursue this for your clients at such a risk for an investor. Your asking for someone to take on a speculative risk on people who’s credit MAY be better or who’s interest may not change in two years time. Commission fees, closing costs on both ends, and capital gains will absolutely shred much of any profits you may make.
Plus, as others have mentioned here already, this type of situation has practically been done away with so there is that added risk for the investor.
Do you know any mortgage brokers that lend to buyers with average scores? @Lucia Rushton
Hi Dracy! I can lend to borrowers with 620+ scores. VA loans for primary residences can be 100% financed. I'd be happy to look at their situation a little more closely if that's something they're interested in.
When I secure financing I may rent to them but let them know that rent to own is not an option and they will need to find another house when they are ready to own unless they are willing to cover the fees associated with the sale. Then fill the vacancy with new tenants.
From your experience do you see this possibly being a successful way to go about it or would connecting them with a seller and walking away with a finders fee be better?
@Chandler Kimble thank you for your post. I will let them know. Can you send me your contact info so I will have it readily available for them?
As I read this, I can see a scenario where this may make sense, but it is risky on the appreciation side. But, I rented out my house (that was not the original intent) because I could not sell it in the middle of winter and had to move. The tenant paid down my mortgage for almost 2 years, the house appreciated and closing was SUPER easy since she already lived in the house. I only paid my Realtor a 1% transaction fee and I made out pretty darn well on resale with appreciation. Is that the scenario @Dracy Campbell ? They want to rent for a couple years and then buy, but not necessarily move again?