New to forums question about a home we have to rent or sell?

Question

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.

John Jackson · Answer

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.

John Jackson · Answer

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.

Stephanie Dupuis · Answer

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.

Brian Gibbons · Answer

You are too kind, Ben Leybovich.

And if anyone ever wants to buy a multifamily for 5% cash down, see his AWESOME podcast here http://www.biggerpockets.com/renewsblog/2013/04/18/cash-flow-creative-finance-life-ben-leybovich/

Ben Leybovich · Answer

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

Brandon Turner · Answer

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!

Elizabeth Colegrove · Answer

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.

Elizabeth Colegrove · Answer

@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

Brian Gibbons · Answer

Ryan Coburn Welcome to BP!

Selling on terms with existing financing include:
1. Contract For deed
2. Lease Option
3. Wrap Around Mortgage - AITD

Every state has there own Seller Financing conventions.

An idea might be to use a 12 month Lease and a Contract For Option to Purchase.  See http://www.biggerpockets.com/files/user/REISkills/file/contract-for-option-to-purchase

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.

Best Wishes,

Brian

Ryan Coburn · Answer

@ 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?