Rent to own or hold out for full sale? Need selling critique

5 Replies

I purchased a 3/1 for $52,000 and I have added another full bath making it a nice 3/2. It sits on just under an acre lot in a great location. Its been sitting for a few months at $133,000. I recently met with my realtor and he's advised me that market value might be closer to $120,000. I have about $24,000 into the flip, so the margins are still excellent. I have two very interested parties that came to me when I had it FSBO. I had them written into the contract with my realtor that if they bought, then they would be excluded from from him listing the property.

One party needs to still sell their house and I can't get them to commit otherwise. The second party has been very active and now wants to purchase the property at $130,000. However, she can't apply for her VA loan until July due to having used it in the past year..etc. She is willing to put $5000 down, non refundable, and then pay rent leading up till July when she can apply for her loan.

My thinking was this: I could do a LTV 70% on the property, which would make me liquid from the flip. Then set the monthly rent to cash flow in my favor nicely, according to the loan. Then if she is unable to secure her loan in July she would be entitled to a one year lease and then set a balloon of some sort on the payments to give her incentive to find financing sooner than later.

This would be the first time I would enter into renting a property, I've only flipped them to date. I'm looking for any advise or critique going forward.

Thank you ALL as usual

You can easily seller finance at the $130k. Then either wait for the VA loan to refinance your loan, or sell the loan to a note buyer to cash out. Be sure to structure the loan with a high interest rate. This will motivate the buyer to refinance quickly, and also make it more attractive to a note buyer.

Originally posted by @Michael Bingham :
I purchased a 3/1 for $52,000 and I have added another full bath making it a nice 3/2. It sits on just under an acre lot in a great location. Its been sitting for a few months at $133,000. I recently met with my realtor and he's advised me that market value might be closer to $120,000. I have about $24,000 into the flip, so the margins are still excellent. I have two very interested parties that came to me when I had it FSBO. I had them written into the contract with my realtor that if they bought, then they would be excluded from from him listing the property.

One party needs to still sell their house and I can't get them to commit otherwise. The second party has been very active and now wants to purchase the property at $130,000. However, she can't apply for her VA loan until July due to having used it in the past year..etc. She is willing to put $5000 down, non refundable, and then pay rent leading up till July when she can apply for her loan.

My thinking was this: I could do a LTV 70% on the property, which would make me liquid from the flip. Then set the monthly rent to cash flow in my favor nicely, according to the loan. Then if she is unable to secure her loan in July she would be entitled to a one year lease and then set a balloon of some sort on the payments to give her incentive to find financing sooner than later.

This would be the first time I would enter into renting a property, I've only flipped them to date. I'm looking for any advise or critique going forward.

Thank you ALL as usual

There are several ways to do this. You are only 60 days from a contract date of a few days beyond for her to go with VA. I'd tend to leasing with an option, a 5K option price, then roll that to a purchase contract and apply the option price toward the purchase.

Next, if your Realtor says the market is at 120K you're probably over priced, VA appraisals are not what I'd call liberally applied. Are you sure there are no repairs?

Next, this wasn't a home you lived in, saying you're a flipper, so doesn't sound like you're exempt from seller financing requirements, but I'm not up on Texas originations, you might be exempt. Even if you are, you really need to make an attempt to comply as closely as you can.

Again, seller financing does not add value to a property. Are you willing to drop the price if the appraisal comes in at say 122K? Doing a contract at 130 and taking a non-refundable down payment, then refusing to sell, not dropping the price to an appraised value could well put you in a predatory contracting position. Contracting at a price that is too high, taking the down payment, then having the borrower fail, is a classic rinse and repeat scam. Add seller financing to that and you could have some questions to answer.

You do realize if stuff hits the fan, that agent will state he advised you of the current market conditions, the agent won't be sticking their tail out for you.

If you do any seller financing, simply slamming the note with a high rate is not the way to initially motivate, I'd suggest you also see what the usury limit may be and ensure that at that rate, the borrower has the ability to pay. Slapping a high rate on a note without justification is just another predatory aspect to deal with. I'd hope you'd see an attorney if you get close to any financing arrangement.

A lease can cover your holding costs, an option price will secure the deal. Roll over the option in 60 days or so to a purchase agreement and let her apply for the VA financing. If it flies great!

If it doesn't you need other exit strategies. You can extend a lease and consume the down payment by giving another option. You can then refinance as you suggested and simply take the lease income.

Head the advice of your Realtor and see an attorney. From your initial proposal you're at least touching the line on new financing requirements, your pricing is approaching predatory dealings and just throwing a high rate out justification would only add to issues. :)

Talk to a lawyer and let them advise you on the best thing to do.

Joe Gore

As an investor selling to an owner occupant a balloon will VERY likely get you in trouble with DF. A lease option with a limited time frame will help motivate and looks like a cleaner transaction.

If you are holding longer term you can do a Adjustable Rate loan but DF requires it to be fixed for 5 years and then it can only go up 2% a year (Max) for a total increase of 6% (Max) so it would take 8 years to hit the top rate.

Either way I would not make a seller financed loan without getting the buyer qualified by a LMO.

If you are selling to an investor then DF does not apply.

@Michael Bingham  How did it turn out for you?  Which route to get it sold did you take?  Sounds like it was on track to do well!

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