Want to sell and stay for 4+ years

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Want to sell and stay for 4+ years

Chris Antonelli
Member since 2020 · 8 posts · 2 votes

Own a home in desirable country club community outside of Washington DC.  Want to sell and stay for at least 4 years until kids in college.  Reason:  Want to access equity for new business but credit not good so selling and finding a rental not a good option.  Proposal 1:  Sell well below market value and stay either rent free or very low rent while continuing to be responsible for all repairs and upkeep.  Proposal 2:  Sell at market value and prepay 4 years of rent from the proceeds, standard lease terms. Thoughts?

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
Quote from @Chris Antonelli:

Own a home in desirable country club community outside of Washington DC.  Want to sell and stay for at least 4 years until kids in college.  Reason:  Want to access equity for new business but credit not good so selling and finding a rental not a good option.  Proposal 1:  Sell well below market value and stay either rent free or very low rent while continuing to be responsible for all repairs and upkeep.  Proposal 2:  Sell at market value and prepay 4 years of rent from the proceeds, standard lease terms. Thoughts?

Having a renter responsible on a residence for all repairs and upkeep can lead to legal problems down the line. The standard sell it and rent it back for 4 years is probably the best bet. The challenge will be selling it at market value as a rental because the numbers will not work. 

For example lets say its $800k property that rents for $3,000. Lets say investor puts 20% down and finances 640k. They are paying $5,000/mo assuming taxes insurance and mortgage. They are losing $2,000 month which is $96k over 4 years and that does not include repairs or PM fees etc. Time value of money they could invest that $160k somewhere else and earn $50k+ on it over that period vs losing $96k. I would assume minimal appreciation during the next 4 years so for an investor (like myself) I would probably only offer a number of around $600k. 

Now if you were willing to pay rent equal to mortgage, taxes and insurance for the buyer then that could change the numbers.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Chris Antonelli:

    Own a home in desirable country club community outside of Washington DC.  Want to sell and stay for at least 4 years until kids in college.  Reason:  Want to access equity for new business but credit not good so selling and finding a rental not a good option.  Proposal 1:  Sell well below market value and stay either rent free or very low rent while continuing to be responsible for all repairs and upkeep.  Proposal 2:  Sell at market value and prepay 4 years of rent from the proceeds, standard lease terms. Thoughts?

    Having a renter responsible on a residence for all repairs and upkeep can lead to legal problems down the line. The standard sell it and rent it back for 4 years is probably the best bet. The challenge will be selling it at market value as a rental because the numbers will not work. 

    For example lets say its $800k property that rents for $3,000. Lets say investor puts 20% down and finances 640k. They are paying $5,000/mo assuming taxes insurance and mortgage. They are losing $2,000 month which is $96k over 4 years and that does not include repairs or PM fees etc. Time value of money they could invest that $160k somewhere else and earn $50k+ on it over that period vs losing $96k. I would assume minimal appreciation during the next 4 years so for an investor (like myself) I would probably only offer a number of around $600k. 

    Now if you were willing to pay rent equal to mortgage, taxes and insurance for the buyer then that could change the numbers.

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  • Marian Huish
    Real Estate Broker · DC MD, VA & NV · Member since 2014 · 512 posts · 292 votes
    2y

    Why not just re-fi @Chris Antonelli?  Even though you may be paying a higher rate, your property value will likely continue to grow over the next four years.

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  • Chris Antonelli
    OP
    Member since 2020 · 8 posts · 2 votes
    2y

    As an investor myself, I can appreciate that.  I have a bottom line amount I want to get and don't really care how I get there which is why I thought there might be some options.....

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  • Chris Antonelli
    OP
    Member since 2020 · 8 posts · 2 votes
    2y

    explored that option but rates are really absurd, makes it a financial death wish.... 

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2y

    Are there any other properties in the community for rent?  I’d prefer to sell out right (get the higher price from an owner occupant.) and then just move in to a true rental in the same neighborhood.   You’ll sell for more and probably pay less in rent because the owner has a lower basis/holding costs. It might cost a week of hassle but could be worth $50-$100k or more and less hassle o for those  4 years. 

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  • Chris Antonelli
    OP
    Member since 2020 · 8 posts · 2 votes
    2y

    Rents are actually quite a bit higher than my mortgage payment.....

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2y

    Yes. But you would have to pay those higher rents even if you sold and rented back your own home. You can’t sell to a new owner. Someone who is paying a higher rate, on an higher balance, and an even higher mortgage payment than you and pay them below market rent. Especially not for four years. 

    So you will be paying the same or more to rent your own property back than others are charging. BUT you will have that extra $100k plus from  selling to an owner occupant, plus not be responsible for repairs. 

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  • Chris Antonelli
    OP
    Member since 2020 · 8 posts · 2 votes
    2y

    All good points, appreciate you taking the time to make them!

    1Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    2y
    Quote from @Chris Antonelli:

    explored that option but rates are really absurd, makes it a financial death wish.... 


     Thats why someone wouldnt buy your house and rent it back to you for less than they are paying for a mortgage .  And if your credit isnt good , why would they rent your old house to you ? 

    I dont see how the numbers would work for an investor 

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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    2y

    Most of us would fix the credit situation, however long that takes, and then move forward with the plans. Bad credit, starting a new business, and living in a desirable country club community is not a path that most of us took in our REI journey.

    1Reply
  • Chris Antonelli
    OP
    Member since 2020 · 8 posts · 2 votes
    2y

    Agreed about the credit but my plan would be to pre pay the full amount out of proceeds...  . 

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  • Chris Antonelli
    OP
    Member since 2020 · 8 posts · 2 votes
    2y

    Fair point, but my journey also started a while back.  I own 20 doors which provides nice income.  Had ups and downs along the way as I'm sure many people have.  If I'd waited for the perfect time to acquire my first door I would never have been able to get the rest.  Have another opportunity and just trying to take advantage......

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    I may have missed it, but you said you are willing to pre-pay the full amount, is that market value for the rent?  I'm assuming yes if you went with option 2, but option 1 is below market value because you are giving them a deal on the house.  I'd also be careful because what is to stop someone from saying they'd buy it and go with option 1 and then tell you you have to move? 

    1Reply
  • Chris Antonelli
    OP
    Member since 2020 · 8 posts · 2 votes
    2y

    There would have to be a lease agreement in place for the entire term, that should prevent any issues I imagine?

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    2y
    Quote from @Chris Antonelli:

    explored that option but rates are really absurd, makes it a financial death wish.... 

    You should have been around in 1980-81.  Mortgage rates hit 18%…
    Private Mortgage Financing Partners, LLC
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  • Hassan Asif
    Architect · FL · Member since 2020 · 15 posts · 3 votes
    2y
    Quote from @Chris Antonelli:

    Own a home in desirable country club community outside of Washington DC.  Want to sell and stay for at least 4 years until kids in college.  Reason:  Want to access equity for new business but credit not good so selling and finding a rental not a good option.  Proposal 1:  Sell well below market value and stay either rent free or very low rent while continuing to be responsible for all repairs and upkeep.  Proposal 2:  Sell at market value and prepay 4 years of rent from the proceeds, standard lease terms. Thoughts? 

    This setup might not be viable for most investors, as offering rent-free or low rent significantly cuts into their returns, especially with you staying long-term. To make this work for an investor, consider selling at market value and paying fair market rent, or exploring a lease option where you continue living there but with a reasonable rental rate, and they get guaranteed income. This would make it more appealing while still allowing you to access your equity.
    0Reply
  • Erika Aguirre
    Member since 2024 · 22 posts · 2 votes
    2y

    Hey Chris,

    let's talk creative financing options for this 4plus year plan for your property.

    0Reply
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