Hi BP! I am trying to decide if I should do a lease option, seller financing or just sell this home the good old fashioned way. Here are the details...
The house is a 3/1 with 1400 sqft with new roof, carpet & paint. I purchased the house “subject-to” and am currently paying payments of about $450 per month on a $67,000 mortgage and I have spent about $20k on renovations. Market value of the home is $120k, so I have about $33k in equity. Market rent for the house is around $850 per month and the neighborhood is C-.
From what I have read online, it seems like maybe I should NOT do a lease option for this house because I have a decent amount of equity… and because I probably won’t be able to get a very substantial down payment.
People also say that seller financing can be a pain because I would be relinquishing title to the new “owner” and therefore would have to do a foreclosure if they stop paying rather than an eviction. BUT I could potentially get a more substantial down payment.
I am currently a “flipper” only, so it would be really great to start getting a little cash flow. I need to start creating income “drips” for myself, but I am thinking maybe this isn’t the right scenario/ house since I have $33k equity.
Should I just list the house on MLS for sale with the possibility of seller financing with a significant ($20k??) down payment?I am sure there are a million things that I don’t even know to think of, so any advice you could offer would be SO greatly appreciated!
Hello again @Melissa Searing ! Good to 'see' you!
I agree getting drip income or ongoing cash flow is prudent. Flipping is tough and taxed highly.
I'd be tempted to keep this as a rental if it wasn't in a c- area. Lease options I like to offer with nicer houses in nicer areas and I usually get 3-5% in option consideration. But... if a highly qualified TB came along with 5% to put up, I might try one for 18 months. Wouldn't hurt to put an ad on CL (without your ph#) to test the demand. Ask for top of market rent and purchase price.
Qualify them like you would a tenant. Ask how many animals, how much they smoke, if the house is far from their work, etc. In the ad itself. No answer = no answer.
I wouldn't seller finance, especially in a c- area. Getting it back in good condition will be tough.
I have sold a couple with SF and earning a bunch of interest just kills me at tax time. Doesn't matter that it's wrapped and you don't net all the interest after paying your underlying loan. My tax rate on the lousy $11k in interest I earn a year on one of them is like 50%, but that may just be my situation.
I'd either LO it or sell it, but I would try to sell on my own first. I did 2 FSBOs last year, no problem. Sounds like you have a good handle on asking price which is the hardest part really. Maybe try a flat-fee MLS listing.
Good luck with this!
Hey @Steve Vaughan ! Great to see you again too! :-)
Thanks so much for your thoughtful response to my post. I didn't think about taxation on seller financing a property. And that's a great idea to start with FSBO to save on commissions. One of my partners has her real estate license, so we can list it on MLS if that doesn't work.