Glendive, MT · Member since 2013 · 3 posts · 0 votes
Hello glad I found this forum good stuff here. I wanted to get some advice I own a home 5 hours away I have tried to sell it now for 2 months no offers asking price 179,500. We owe 162 k on the home we can get 1200 rent for it we bought it for 178 k. Our mortgage is 922 dollars. I am losing money each month I can cash flow the lose no problem but wondered would you try and sell it or rent it again. We rented it for 4 years they moved out two months ago. We spent 3 k fixing it up cleaning out there junk etc.
Hey Ryan. Personally, I think I would rent it out and perhaps try to do a "lease option" to get a little more rent and transfer the maintenance concerns over to the tenant. This way, you still might be able to sell it, but if not, at least you are building wealth while holding it.
Here's an article with a little more on that strategy. I'm not the pro at it, but perhaps some lease option (lease purchase) experts will jump into this thread.
Ryan Coburn Welcome to BP. I'd be careful with Brandon Turner's suggestion of a lease/option. An option in most states it triggers Due on Sale in your mortgage note. Be careful! But yes - rent :)
Ben Leybovich makes a good point I suppose, and with rising interest rates, it could be an issue in the future when the banks get tired of the 3.5% mortgages and start calling notes due.
That said, if you sign an option document - the bank isn't going to know, right? I'm not saying it's okay to be deceptive - I'm just saying there is no way for them to call a note due if there was no legal transfer of ownership. I suppose the tenant could call up the bank and tell them, but that's unlikely. Thoughts from either you, Ryan Coburn or Ben?
Wrong Brandon Turner An opinion and a lease of 3 years or longer need to be recorded. Look - when a seller signs an option he binds himself. The buyer can chose t exercise or not, but the seller is stuck. If I ever sign an option, I want it recorded to protect me - it's the only thing I got. Options should be recorded. And the banks are starting to get tired - with rates going up, they are going to come looking...:)
Personally I would rent it again to another long term tenant. If it has been going well I would continue to rent it till you get an offer to buy. Also note that if the tenants did damage beyond usual wear and tear. You can take it out of there security deposit.
Note: depending on alot of different factors. Although you are not experiencing a cash loss each month you might be experience a book loss helping you on your taxes. Plus, speak to a cpa and find out what the tax ramifications are if you are not going to roll the money in a 1031 exchange. I would hate for you to have a suprise at tax time.
@ Brandon I will study what a lease option is
@ Ben I will study the negatives as well thanks for advice of renting
@ Elizabeth we did keep the security deposit as they had pets in the property and our contract states no pets. So I guess we spent 2 k to fix it up tenant spent 1 k.
@ Elizabeth how does it work having the house on the market with a tenant in it? Do they sell slower typically? Should you reduce the rent they pay because they may have to move and the showings?
Right of First Refusal (ROFR) and Right of First Negotiation are preemptive rights to purchase specific real property at some future time upon certain defined terms and conditions.
A ROFR differs from an option in that it is conditional, not fixed, and generally does not specify a dollar price. An option to purchase, on the other hand, is a unilateral contract which gives the Holder the right to compel sale of the property at certain price within a certain option term.
See your local Real Estate attorney that has deep experience for your state.
And, there is no "Due on Sale" Jail. Just have a Plan B in case the loan is called.
I would put pictures on Craigslist, and try this:
For the right party, I will owner finance this property with 3% down and $1200 per month. You have 36 months to get the mortgage. Purchase price will be new appraisal at the time of finance.
@ryan I am about to embark on the process of selling my mothers rental with a tenant in it. We are going to advertise the house as a m-to-m. The plan is to keep the rent right below the next hundred ie if market is $1050 we will advertide for $975. That way we can select the right canidate from a wide selection. We also plan on offering a $500 "thank you" to the tenant if the house is sold. Since the tenants cooperativeness will greatly affect our ability to sell the place. We are also going to be upfront. I am using this method because my mother doesnt want large carrying cost if it doesnt sell. We are only selling so she can move the equity to another market that fits her current needs better. Ie she is not indire straights or we might be doing it differently.
I can say from both my experiemce
Sorry my phone wouldnt let me continue my thought.
From both my mother and my experience, we gave also had tenants want to buy our house. Our market is young professionas who are new or starting out. Thereforany after getting to know the area are interested in buying the place.
If you are not desperate I would truly put a tenant in the house. I would either try our method or wait till a later date.
Ben Leybovich - while I agree, a long option should probably be recorded, it's moot because I wouldn't do one past three years anyways. It's much more important for the buyer to record than the seller - he's the one with money on the table but most tenant/buyers would never do that.
I think that 3 years is about the longest ever I would do a lease option for anyways. The idea is to rent it to them until they can buy it - not as a long term financing move. Plus, I'd keep the lease and the option separate. Like Brian Gibbons said, there is no lease option jail, just a Plan B. :) (I was hoping you would hop in, Brian!)
Thoughts? (if you can't tell - Ben and I enjoy debating this stuff!)
Hope it's cool we're hijacking your question a bit here, Ryan Coburn!
Ryan Coburn I am n the opposite side on this issue from Brian Gibbons. However, if I ever wanted to learn all that there is to learn on this subject, Brian is he guy I would call - he has forgotten more about options, land trust, and all the rest of it than I will ever know, or care to know, I think :) Good luck
Ryan Coburn I am n the opposite side on this issue from Brian Gibbons. However, if I ever wanted to learn all that there is to learn on this subject, Brian is he guy I would call - he has forgotten more about options, land trust, and all the rest of it than I will ever know, or care to know, I think :) Good luck
I've had two attys. in my area tell my that lease options with contracts longer than two years (at least in WA state) give equitable interest in the property, fyi. Another thing to look into - this may be state specific. I was told this most recently in Dec. 2012. If the tenant can't fulfill the L/O agreement on the property where there is a contract, you cannot keep them in that property (by either re-newing the lease option or re-renting to them) - this will give them equitable interest (b/c there was a L/O contract). But, you can move the tenant to another (separate) property that you own and begin either a new L/O or simply rent to them. Moving a tenant to a separate property removes the equitable interest problem.
Point being, no matter what solution(s) that you chose or get looked into, see an atty. to protect your property and to make sure you conduct the process correctly.
I'm with Brian Gibbons 100% on this..lease option it.
You set the option price at $179,500, or maybe a bit higher if the market is strong there.
You get an option fee of $5k down.
That is applied to the FHA's required 3.5% at finance.
Offer them $3600 concession at closing, and BOOM, you have a lease option.
Since I assume you aren't in the business, have them go thru a loan officer to pull credit to see how long it will take for finance and of course look at debt to income.
When you offer it as a lease option, you open it up to a whole other pool of people that wouldn't have looked at it as an outright purchase.
Also, nothing triggers the due on sale. The clause is there, which gives the lienholder the right to call a note due if the property is sold or lease optioned.
After lease optioning 500 houses...I've never had a note called due.