Can I rent a short sale house?

Question

Can I rent a short sale house? Currently we are in no position to buy this house (going through banckrupcy). The house I am interested in has been on the market for almost a year and it is short sale. It's an ideal house in a great location and I would like to rent it with the future option to buy it. Is it possible?

Jon Holdman · Answer

Probably not.  To rent you have to rent it from the owner.  The owner is in trouble or they wouldn't be trying to sell the house short.  They are probably not in a position to be a landlord.  You should inquire, though, perhaps they could do it.

Alternatively you would be looking for an investor to buy the house and then lease/option it to you.  Thats not impossible, but can be tricky to arrange.  And you may not like the deal.  For a rental to be profitable the rent has to be quite a bit more than the payment.  A bank will consider a rental to be break even if the rent is one third more than the PITI payment.  An investor will need to put about 25% down, and they will want a return on that, too.  And they will want some profit.  So, if the investor puts down 25% and the PITI payment is, say, $900, you have to add a third to get to break even, then another third to account for the down payment.  The first third brings it to $1200 and the second third makes it $1600.  Then the investor wants some profit, so perhaps they rent it to you at $1700.  Does that work for you?

The investor is also going to want a profit on the sale.  So, if they buy it at $150K, your option price is going to be something higher than that.  Almost certainly they will have to spend some money on fixing the property when they buy.  And they want a profit.  Does that work for you, too?

You will say "the investor has a guaranteed buyer and we will be great tenants and take care of the place.  All that may be true, but the investor has to assume the worst.

Your best bet may well be the homeowner.  If you can pay them enough to cover their monthly payment, they may think this is OK.  Problem is this doesn't get the short sale resolved.  If that's already been negotiated, then wanting for five years or so (you imply you're just now doing a bankruptcy) for you to buy will throw away the negotiations that have already been done.

Houses are nothing but piles of bricks and boards.  I'm sure there's something else for rent in the same area.  Just rent something that works for you, price wise and feature wise, and buy when you get your financial house in order.

Bill Gulley · Answer

If a notice of foreclosure has been made the owner can not rent it, it could be they gave notice and are sitting waiting on a SS. If not, and you catch up all payments bringing the loan current, and the lender accepts payments and releases the foreclosure then you could rent it. This will probably be a doubtful success, but you can see.....and you need to talk to the seller as the Realtor is interested in selling it, not renting it. Good luck