What would you do with this?
Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes
What would you do with this?
Most Popular Reply
Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
12y
Sorry John, but with all the uncertainty about Dodd-Frank floating around I would strongly advise against doing rent credits of any kind.
@Trey Leigh you may still be able to do a lease option but be very careful about how you do it. Search the website for Dodd-Frank and read all the stuff that's out there about it.
Patrick, that's why I referred them to a licensed real estate agent. I've heard the ins and outs of rent to own can be complicated and we definitely want everything to be on the up and up. We still don't even know if that is something we'd be interested in, hopefully the agent can put together some scenarios for us to ponder. Another question is how would the agent get her commission for a prolonged payout scenario like lease to own, or would she?
Dodd Frank has to do with Owner Occupied Seller Financing.
@Bill Walston will chime in here, as well as @Bill Gulley ,
If you have a lease and a separate option, no rent credits, you are not offering financing, just taking the property off the market for a set time, and giving some one time to get their DTI and Credit better.
Go take the Tenant Buyer to a RMLO and do a preliminary 8 point Dodd Frank check (See What is a Qualified Mortgage http://www.qualifiedmortgage.org/definition/)
Bottom Line - Have a RMLO look at every Tenant Buyer on a Lease with Option just to be safe.
To have the agent get paid, you could have some of the option fee to agent, and a lien on the title to have the balance of commission paid when the house sells.
38 Replies
- SFR Investor · Lakewood, CA · Member since 2013 · 66 posts · 16 votes12yHi Trey, If you don't mind me asking, what city is this property in? For lease options, it's common to ask for a down payment that will go toward the total purchase price. The buyer would have to lease from you for a length of time that both you, the seller, & the buyer. Considering the 20k profit if you sell it out right, the 'rent-to-own' may get you maybe 10k & then the buyer's monthly payment until the buyer can get a bank loan or conventional financing. Also, you can ask a higher rent/lease payment than the other rentals in the neighborhood with a portion of the rent going towards the purchase price of the house. A lot of investors use this deal so that they won't have to deal a lot with the usual tenants complaints. If it's broken, it's up to the buyer to fet it fixed. All you have to worry about is the momthly payments. If they default, you're still the owner & the contract is revoked. You keep the down payment and any extra funds that will apply towards the purchase. Hope that helps -john
- 12yJeff LubeskiPro MemberInvestor · Hartland, MI · Member since 2013 · 60 posts · 6 votesI've flipped a couple of house and have 4 rentals right now. Give some consideration to your taxes if you decide to sell. Your gains from the sale will be considered as income and can have some significant tax cost.
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
@JohnMalahay it's in Uvalde, TX. Near San Antonio.
Thanks for the info!
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
Originally posted by @Jeff Lubeski:
I've flipped a couple of house and have 4 rentals right now. Give some consideration to your taxes if you decide to sell. Your gains fromtt the sale will be considered as income and can have some significant tax cost.Jeff, thanks for the reply. Would it be taxable if we put the money into another property? I should probably know this I guess.
Maybe what John said makes sense then, getting some up front and spreading the final sale into next year.
- REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes12y
Originally posted by @John Malahay:
Hi Trey, If you don't mind me asking, what city is this property in? For lease options, it's common to ask for a down payment that will go toward the total purchase price. The buyer would have to lease from you for a length of time that both you, the seller, & the buyer. Considering the 20k profit if you sell it out right, the 'rent-to-own' may get you maybe 10k & then the buyer's monthly payment until the buyer can get a bank loan or conventional financing. Also, you can ask a higher rent/lease payment than the other rentals in the neighborhood with a portion of the rent going towards the purchase price of the house. A lot of investors use this deal so that they won't have to deal a lot with the usual tenants complaints. If it's broken, it's up to the buyer to fet it fixed. All you have to worry about is the momthly payments. If they default, you're still the owner & the contract is revoked. You keep the down payment and any extra funds that will apply towards the purchase. Hope that helps -johnSorry John, but with all the uncertainty about Dodd-Frank floating around I would strongly advise against doing rent credits of any kind.
@Trey Leigh you may still be able to do a lease option but be very careful about how you do it. Search the website for Dodd-Frank and read all the stuff that's out there about it.
- Multi-family Investor · Alpharetta, GA · Member since 2013 · 76 posts · 13 votes12y
@Trey Leigh I would hold this property. Even if it was just for the time being. If it is in an 8+ school system (according to www.greatschools.org ) it should appreciated at a premium. This will allow you to raise rent each year. Here is my analysis:
So even with all expenses included you are netting over $250/month. This should be a great investment if all the numbers are true.
- REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes12y
Originally posted by @Trey Leigh:
Originally posted by @Jeff Lubeski:
I've flipped a couple of house and have 4 rentals right now. Give some consideration to your taxes if you decide to sell. Your gains fromtt the sale will be considered as income and can have some significant tax cost.Jeff, thanks for the reply. Would it be taxable if we put the money into another property? I should probably know this I guess.
Maybe what John said makes sense then, getting some up front and spreading the final sale into next year.
Trey, you can do a 1031 Exchange to avoid tax liability but there are very specific rules concerning how you do this; time is a big factor.
Additionally, if doing a lease option, consult your CPA before assuming that spreading it past Dec. 31 would change anything. In my opinion, all the income from the sale will be taxed at one time in the year in which the closing is done. Until you make the sale, the down payment is not considered income because you can't do anything with it except hold onto it.
@Steven Hamilton II might be able to give you better answers on the tax liability part. I do know that if you hold it longer than 12 months you will pay long term capital gains instead of short-term capitals gains.
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
Originally posted by @Patrick Connell:
Originally posted by @John Malahay:
Hi Trey, If you don't mind me asking, what city is this property in? For lease options, it's common to ask for a down payment that will go toward the total purchase price. The buyer would have to lease from you for a length of time that both you, the seller, & the buyer. Considering the 20k profit if you sell it out right, the 'rent-to-own' may get you maybe 10k & then the buyer's monthly payment until the buyer can get a bank loan or conventional financing. Also, you can ask a higher rent/lease payment than the other rentals in the neighborhood with a portion of the rent going towards the purchase price of the house. A lot of investors use this deal so that they won't have to deal a lot with the usual tenants complaints. If it's broken, it's up to the buyer to fet it fixed. All you have to worry about is the momthly payments. If they default, you're still the owner & the contract is revoked. You keep the down payment and any extra funds that will apply towards the purchase. Hope that helps -johnSorry John, but with all the uncertainty about Dodd-Frank floating around I would strongly advise against doing rent credits of any kind.
@Trey Leigh you may still be able to do a lease option but be very careful about how you do it. Search the website for Dodd-Frank and read all the stuff that's out there about it.
Patrick, that's why I referred them to a licensed real estate agent. I've heard the ins and outs of rent to own can be complicated and we definitely want everything to be on the up and up. We still don't even know if that is something we'd be interested in, hopefully the agent can put together some scenarios for us to ponder. Another question is how would the agent get her commission for a prolonged payout scenario like lease to own, or would she?
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes12y
Re Fi and pull the cash out?
Go to your small bank, tax free loan proceeds.
Ask the bank to fund 80% of appraisal all deals.
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
Originally posted by @Ryan Halverson:
@Trey Leigh I would hold this property. Even if it was just for the time being. If it is in an 8+ school system (according to www.greatschools.org ) it should appreciated at a premium. This will allow you to raise rent each year. Here is my analysis:
So even with all expenses included you are netting over $250/month. This should be a great investment if all the numbers are true.Thanks Ryan, definitely something to think about...where did you get those figures?
Taxes 1200
Ins. 650
Vacant 800
Maintenance 600
This is what I'm using to approximate cash flow besides the 50 rule
Ins and taxes are actual.
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
Originally posted by @Patrick Connell:
Originally posted by @Trey Leigh:
Originally posted by @Jeff Lubeski:
I've flipped a couple of house and have 4 rentals right now. Give some consideration to your taxes if you decide to sell. Your gains fromtt the sale will be considered as income and can have some significant tax cost.Jeff, thanks for the reply. Would it be taxable if we put the money into another property? I should probably know this I guess.
Maybe what John said makes sense then, getting some up front and spreading the final sale into next year.
Trey, you can do a 1031 Exchange to avoid tax liability but there are very specific rules concerning how you do this; time is a big factor.
Additionally, if doing a lease option, consult your CPA before assuming that spreading it past Dec. 31 would change anything. In my opinion, all the income from the sale will be taxed at one time in the year in which the closing is done. Until you make the sale, the down payment is not considered income because you can't do anything with it except hold onto it.
@Steven Hamilton II might be able to give you better answers on the tax liability part. I do know that if you hold it longer than 12 months you will pay long term capital gains instead of short-term capitals gains.
I hadn't thought of that ... Good advice. I definitely have much to learn
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes12y
Sorry John, but with all the uncertainty about Dodd-Frank floating around I would strongly advise against doing rent credits of any kind.
@Trey Leigh you may still be able to do a lease option but be very careful about how you do it. Search the website for Dodd-Frank and read all the stuff that's out there about it.
Patrick, that's why I referred them to a licensed real estate agent. I've heard the ins and outs of rent to own can be complicated and we definitely want everything to be on the up and up. We still don't even know if that is something we'd be interested in, hopefully the agent can put together some scenarios for us to ponder. Another question is how would the agent get her commission for a prolonged payout scenario like lease to own, or would she?
Dodd Frank has to do with Owner Occupied Seller Financing.
@Bill Walston will chime in here, as well as @Bill Gulley ,
If you have a lease and a separate option, no rent credits, you are not offering financing, just taking the property off the market for a set time, and giving some one time to get their DTI and Credit better.
Go take the Tenant Buyer to a RMLO and do a preliminary 8 point Dodd Frank check (See What is a Qualified Mortgage http://www.qualifiedmortgage.org/definition/)
Bottom Line - Have a RMLO look at every Tenant Buyer on a Lease with Option just to be safe.
To have the agent get paid, you could have some of the option fee to agent, and a lien on the title to have the balance of commission paid when the house sells.
- REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes12y
Originally posted by @Brian Gibbons:
Dodd Frank has to do with Owner Occupied Seller Financing.
@Bill Walston will chime in here, as well as @Bill Gulley ,
If you have a lease and a separate option, no rent credits, you are not offering financing, just taking the property off the market for a set time, and giving some one time to get their DTI and Credit better.
Go take the Tenant Buyer to a RMLO and do a preliminary 8 point Dodd Frank check (See What is a Qualified Mortgage http://www.qualifiedmortgage.org/definition/)
Bottom Line - Have a RMLO look at every Tenant Buyer on a Lease with Option just to be safe.
To have the agent get paid, you could have some of the option fee to agent, and a lien on the title to have the balance of commission paid when the house sells.
Exactly!
- Multi-family Investor · Alpharetta, GA · Member since 2013 · 76 posts · 13 votes12y
@Trey Leigh I looked at a few properties in the area to guesstimate the numbers. With the number you provided you are looking at about $170/month with 100% finance @ 6%. Much lower but I also assume you aren't doing 100% financing. 20% down gives 225/month with a 12% cap rate.
- CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes12y
I would also consider the time value of money factor before you decide not to sell the property. Money today is better than money tomorrow. Make sure you estimate the future value of the $20k minus taxes vs. the perpetual cash flow your will receive from the rental property. You will also want to look at various scenarios of what happens when you reinvest the $20k in stocks, mutual funds, more property, etc.
- 12yJeff LubeskiPro MemberInvestor · Hartland, MI · Member since 2013 · 60 posts · 6 votes
@Trey Leigh. If you just bought the house you will not be able to do the 1031 exchange if you sell it now. It seems like a good long term hold to me. If it has profit built in now and is in a good neighborhood, that profit should continue to grow.
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
@Brian Gibbons
If we did a lease option, what is a typical option fee as a % of sales price? and is that received on top of the deposit for the lease? I assume they forfeit the option if they don't buy the house correct?
Thanks for the great info
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
You have a good point, lots of options potentially, that's why my head is spinning not wanting to leave anything on the table.
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
We bought it in November 2013. The good thing is that we bought this planning on it being a rental, and we can always go to that. I think it is a good deal in that regard. When the idea of a quick profit popped up... It got me to weighing the options. If we sell this it will be our second "inadvertent" flip in the last 12 months. Last one was a duplex we owned thar didn't perform and wasn't quite what we thought it was. While doing a quick rehab on one unit we asked our realtor what it was worth and she priced it 15k over what we had in it, we didn't make much after closing, but got out from under a bad deal.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes12y
First, Brandon, and everyone else, you are missing the legal and business aspects of what an option is, like let me sell you a new car at 2020 prices! There is no value in that and you'll get hammered with that thinking. Kids with a little knowledge are dangerous and kids come in at all ages.
There are many aspects of DF that are missed by those attempting to decipher the law and hang everything on RE. One aspect is the "Department of Education" I can see the world of gurus crashing down in the future!
You can't just read the DF Act and understand what it means or how it will impact RE or finance, without being familiar with ALL financial regulations, pretty much from 1938 forward to get the big picture. In fact, DF effects federal law in unusual places, from the EPA, to the FAA to the activities of the GAO!
Don't think you're going to understand DF in a few months either, there are requirements for different agencies to provide studies reaching out to five years and the law touches on ever federal agency except the intelligence community and the state department that I've seen so far, it even touches on the armed forces. You have no idea what's on the way!
Hint: Person to person transactions! Later on, if your daughter has a Kool-Aid stand, it may be a covered transaction.
My suggestion, stop trying to figure out what you might get away with, you won't be able to put your hand out for a dollar in any way shape or form. Get very honest in your dealings, don't even try to hide something, give a true value for value received and ensure that those you deal with are fully informed. Bye bye guru teachings, ideas, strategies and ploys! :)
- Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes12y
To me the answer depends on two questions:
1. If you keep it, will you still have enough cash in reserve to do another deal?
2. How hard is it to find deals?
If this property uses up all your cash and finding more deals is easy then I would sell it to build your cash for more acquisitions. At the purchase price you are looking at, $20k is a big peice of a purchase.
If you still have reserves to move on to the next project then waiting 6-12 month to refinance is no big deal and you should keep it.
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
If we hold, I will have to wait and save until I can do another, if we sell I'll get my initial investment plus the profit and can do another. This is why I lean toward selling because I like the hunt!
The lease option deal is foreign to me, other than someone pays a fee for the right to exercise an option to purchase the house at a given time for a given amount. Just like I pay an option fee to get out of a contract within so many days. I'm so new to this @Bill Gulley that everything you wrote in the previous post soared straight over my head!
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes12y
Originally posted by @Trey Leigh:
@Brian Gibbons
If we did a lease option, what is a typical option fee as a % of sales price? and is that received on top of the deposit for the lease? I assume they forfeit the option if they don't buy the house correct?
Thanks for the great info
Contact @John Jackson he will guide you in TX.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes12y
Originally posted by @Trey Leigh:
@Brant Richardson
.......... Just like I pay an option fee to get out of a contract within so many days. I'm so new to this @Bill Gulley that everything you wrote in the previous post soared straight over my head!
That's okay, you'll catch on and my post will be there when the Jedi arrives, you can review it then. The most important part was that last part, staying honest, that will get you further than anything. Good luck :)
- Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes12y
Thank you
@Brian Gibbons and @Bill Gulley for the info.
Open and up front is the only way I will do a deal, I live in a small town and don't need to be looking over my shoulder ......its just not worth it.
Thanks to everyone for their input, I learned a lot and got a lot of good ideas to boot.
Trey
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