Afford it they cannot, the average household.
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Just Paid property tax on the home we just bought. It looks like delinquencies are picking up in our area. Short of taking/ teaching tax lien courses, is there real money to be made?
Indeed. We paid $810k for our place just north of CLT at the exact wrong time per national trends–May 2022. 100k over ask, and we were very lucky to get it. And now it appraises almost 10% better from there, before any improvements.
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Same in PHX. with high rates. However, we’re having a hard time selling our home that needs renovations. Appraisal vs actual sales
Good luck Jesse! I emphatically believe that higher rates AND softer demand place a premium on having a turnkey property. Not only can buyers be pickier, but they are less willing to finance repairs, take out equity loans, et cetera in an unfavorable / less affordable rate environment.
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I agree with @DaveHanson 's comments and will add something that our previous real estate agents have been telling me for at least a decade. Most of today’s buyers do not want to “have” to do anything to home. Although my intuition says a buyer would prefer a $xxxx discount so that they can pick out their preferred flooring, colors etc., that is not the case.
Replace carpets, paint, etc. with neutral colors/tones and you should be good to go. If more extensive renovations are required, look at pictures of comps that sold and see what changes they made.
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Not getting any offers and realtor says not to do any upgrades/cheap or not and do a credit like you’re saying. Part of the problem is lots of “old fashioned” tile. we’re even attracting a lot of senior buyers. One offer fell thru with all the inspection items since it’s a 20 yr old house.
This came up as a creative solution/ lease purchase. He’s a General contractor, and I plan on visiting his showroom tomorrow. Definitely will talk to a real estate attorney
"I’d like to structure a 24-month lease purchase with two 6-month extensions. The purpose would be to improve the property so it will appraise for a much higher amount which would help us avoid PMI and perhaps by then interest will have dropped a bit more as well, making our monthly payment more palatable.
We would immediately paint the interior and, time permitting, replace all flooring. Over the term, we would update the kitchen and baths as well.
My offer would be a purchase price of $8XX,000 with zero realtor fees to be transacted anytime during the 2-3 year term. I would pay $5,000 a month rent plus the HOA fees.
We would ask that you keep a good home warranty in place and we would pay the deductible for any major repairs and we would be responsible for minor repairs and maintenance.
If you’re amenable to this structure we can put a deal in writing. Let me know your thoughts"
You already have a realtor, right? They might expect to get paid.
Do you still have a mortgage? On the one hand it sounds nice. I wish I could get that much rent for something worth $8XX,000. On the other hand… what is the market rent for this house? This offer is equivalent to owner financing for 2-3 years at a very low interest rate. Subtract market rent from $5K to find out how low.
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I’d think at the very least he’d have to frame it as deciding to rent rather than sell. And leave out mentioning the “to own” part of the rental agreement to the agent.
You’ll also remain liable for injuries occuring on the property. Indemnification is what it is, but is only as effective as the party who is indemnifying you.
My own preference, if chosing to deal with this guy (and if you do not have a mortgage of your own that needs paid off), would be to sell with owner financing. Then you’ve washed your hands of any potential liabilities, and only need to worry about collecting the mortgage payment. Calculate the terms where you’re collecting a monthly payment you are happy with should it drag out, and that is punative enough to incentivize him to refinance as quickly as possible.
Make sure he’s considering the $5k (or whatever it ends up being) monthly payments to in fact be rent. And he’s not planning on counting those payments as credit towards the agreed-to $8XX,000 sale price. It should be clear, but it’s still a detail you want to confirm.
I dont understand this. A 20 year old home shouldnt have many inspection issues, least of all enough to sink a sale. Honestly, it’s an indication the house has not been properly maintained and/or abused.
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Good feedback.
I need to research between owner finance vs. lease rental. Have 1MM USAA umbrella policy will check liability.
No mortgage.
We’re also buying with the realtor so he gets that part and also, this would be a rental initially, and maybe for a while if the buyer does not perform.
The key thing is that guy would renovate a lot (claims about $200K. His costs are lower since he is the business. The views are spectacular/ it’s a diamond in the rough. They have friends in the neighborhood etc
What do you guys think is an appro. deposit? Does anyone here have rentals? Are there management co.s that you recommend given i’d be a newbie?
Not sure what you mean, 1MM is the liability coverage. But umbrella requires an underlying policy with some specific minimum coverage, so you’ll need a separate rental insurance if this becomes a rental. The policy is similar to homeowners, but doesn’t cover the tenants’ contents (that’s what renters insurance is for).
So you are quite literally letting him borrow $800+K for 2-3 years. That kind of money in Treasuries can generate > $3K/mo in interest income without having to pay insurance, property tax, home warranty, property management, etc.
That’s his business, not yours, and it should not influence your decisions.
A few people here have rentals. With a few exceptions, management is local, you’ll want to google and compare them. They usually charge 6-10% of monthly rent, but sometimes a fixed $ amount. Plus 50-100% of first month’s rent to place a tenant (won’t apply here) and sometimes a fee to renew a lease. Sometimes they charge a setup or another fee if you already have a tenant and a signed lease. But you should not need a manager if this guy is doing his own minor repairs and maintenance. He’s not gonna call you on a holiday weekend because of a plumbing emergency.
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Unless you have a desire to get into the rental business, I’d avoid doing rentals.
But this isnt a rentail situation. This is a delayed sale, which changes most of the dynamic behind the advice experienced landlords will offer.
The main considerations are - 1) what if he misses one of those $5k payments? And 2) what if he cant get a $800k loan 3 years from now (or the value has crashed to much less than $800k)? Deciding how to proceed isnt about how you think it’ll work out, it’s about considering the many ways it might not work out the way you think. And you’ve detailed the reasons why he’d enter into such a deal, but havent mentioned why you would beyond “I get to wait three years then hopefully sell it”.
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Good points. We only got one offer so far and it fell thru
I like the fact that I wouldn’t have to deal with typical landlord repair issues, but I’ll have an income stream. Market crash would be a problem, but as long as this guy keeps paying I’ll ride out the storm
I will increase the terms to improve my returns/ make him have more skin in the game.
I’ll ask $6K/mo.+ maybe 10% down.
He’s offering $875K in 2 years to buy out.
If he can’t buy it I get a renovated property. I doubt a mega correction a la 2008 is going to happen, but this is PHX 
And a bill for the work? Or a years-long eviction process where you are collecting nothing?
You shouldnt have to. Doesnt mean you wont.
That’s what I’m saying - it isnt about what you are getting, it’s about what you might not get. And he’s going to be far more adept at adding/finding loopholes in the contract language than you are at blocking them.
Also, you typically dont get a down payment on a rent to own. Part of the rent payment is credited towards the eventual down payment paid when the sale is eventually executed. But in this case he’s paying $5k rent, and hoping the value increases to where the $875k sale price is only 80% of the value and he can get a mortgage for the full purchase price.
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I agree with glitch99. This seems like a raw deal for you and a pretty good deal for the buyer. His promise to renovate is just that – a promise. It’s not going to be in your contract. Everything he tells you is non-binding and isn’t necessarily true – he tells you he has friends in the neighborhood to make you think he’s buying it for himself. Since he’s a GC, he might just want to flip it.
Which means you’re asking too much. Drop the price and see the offers roll in. Or fix it up and relist.
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Not to say it couldnt work out really well for everyone. But the GC doesnt even have to be full of crap, even with the best intentions there’s a lot of circumstantial things that could make it go sideways.
In the end it’s your decision only you can make, but be sure to include all the possible downside before making it.
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absolutely, my wife is a naysayer and will be part of my interview. I will post the contract here and have counsel review too.
I see dual contracts and buckets (lease+purchase) One gives me a return on investment , the other return of investment. we shall see the terms.
I’ve also advised them to look into a traditional mortgage (conv. maxes out 760) + I give him a hard money loan for difference of purchase price.
So you’re gonna put a lien in the second position behind the first mortgage? Better be commensurate with the risk. If the rates stay high enough for long enough, RE prices are more likely to dip, and your position could be underwater.
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Most lenders are going to want to see the source of downpayment funds. Even if you go through the formalities of giving him the cash as a loan then he gives it back to you as the downpayment (which I wouldnt even consider doing), $175k spontaneously showing up in his account a couple days before closing isnt going to pass muster.
I’m not recommending anything because there’s pros and cons to every option. But I mentioned you financing the sale yourself - sell him the home now, and you hold to mortgage collecting the monthly payments. Once that is done, it’s generally easier to refinance an existing note/take out a loan on a home you already own, than as part of a new purchase.
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