Sell, hold or vendor finance my property ...or other?

Question

I am a US citizen who lives in Australia. I've owned a 3 bed 2 bath house on an acre in Clayton, NC since 1997. I left the country for a job opportunity 14 years ago and have rented it - this year I finally I got sick of paying my 7% fixed VA loan all so I paid it off a few months ago. It gets me $1100 rent each month and the agent recons it's worth about $150k. Built in 1995 but I put a bit of money freshening back it up a few years ago. Since it's not leveraged I can't write off any interest (since there is none!) so now my taxes I have to pay here on it are pretty high. If I sell I know I have to pay CGT there unless I invest in something else but I can't get a loan as I am overseas, plus I wouldn't know where to reinvest. (No bank will talk to me about a loan as soon as they hear 'overseas!') Anyway I don't be know what to do - whether to keep or hold or vendor finance - any suggestions? My annual running costs there are about 1100 tax, 600 insurance, and about 1100 management plus any maintenance that comes up.)

Is that a good return or can I do better?

Thx Scott

Is that a good return or can I do better?

Thx Scott

Ron Flatt · Answer

A lot will depend on your situation:  I would think a $150k house should rent for $1500 or better, but different areas are different.  In my area 1500 is top rent, so I go for lower price properties to get the 2%.

There are other lenders besides banks, that would probably loan 70% ARV, but then what are you going to do with the cash.

An out right sell, you will get hit with the CGT but then you have your cash do invest in Australia or another situation.

If you wanted to reinvest in the states- you would need to develop a great relationship with another investor,  (this is not something to rush into) or find one of the great companies that you can be a part of.  I am not a big fan of the REITs but a small buy and hold company with a strong General Partner with some other investors will divide your risk over a larger number of units and if run properly could either provide a safer Monthly cash flow, appreciation, or both.  Again do your homework first and do not jump quickly on this.

Another choice is to find a couple of investors who are stable, and provide longer term financing than a hard money lender.  This can be flexible for you to let your interest compound or get a monthly interest check or have it amortized.  Ex.  We have an elderly lady who sold her rentals, and put it with my company, she wanted it to compound.  She lost her husband last year, so she lost his income, so now she is withdrawing a fixed amount to supplement her other income.  We have a clause that with a 90 day notice she can withdraw up to 50% all at once and with 6 month notice we will cash her out.  We offered to cash her out when her husband passed, but she did not want to.  (as she put it 1% CD or 6% with us, she would take us, the key is she knows we will take care of her. If she needed to be cashed out we would find a way to get it to her.)  It is a relationship, that has been built over 15 years.

Last, the owner finance... I love these but I do not do owner financing on homes over $60K.  The benefits, You do not have the tax bill all at one time.  You do not have maintenance, taxes or insurance, (I do escrow their taxes and insurance with their payment).  You get a better interest rate generally.  You can usually get a loan service to mail take care of the escrowing taxes, insurance, sending 1099 for a small setup fee and monthly charge,(which the buyer pays).    The disadvantages is sometimes new owners do not realize they have to maintain the property, and it can fall in to disrepair.  Takes a longer to foreclose on someone in TX than to just evict a tenant, they can do some damage to the property during a foreclosure.  It also ties up your money, unless you are willing to discount the note for cash.  Generally, I get a good downpayment 10% or better,  the interest I charge is high, because I am not a bank, if they could they would get a bank loan.  Since it is an owner finance I get premium for my property because there are fewer and fewer doing them.  I have had to foreclose very rarely, and generally after we talk, I let them deed the property back to me, they do not get a foreclosure filed, and we part ways friendly.  In fact I have a man signed a house back to me, when he went into his divorce, he could not pay.  3 years later he wants to buy a house again but his credit is still shot.  Yes, I found him a $40k house, he gave the 5k down and i financed the balance at 10%.  He is happy and I have a good buyer that is in a house cheaper than rent and he pays on time.

I have rambled enough, hope this helps.

Scott Balliet · Answer

Ps - house cost me originally $100k and after I pay all my Australian taxes it earns $5k clear and I don't do depreciation - maybe I need to sell or VF or what's the market like over there?