Rental to Owner Finance?

ultrarunner · Mar 6, 2022

It can be a win/win even if things go South as when a friend ended up foreclosing... during the foreclosure and adding a little work picked up an extra 90k for his troubles when it was all said and done...

USAFpj · Mar 30, 2022

Gents, I owe you an update. Thank you for all of the input, and I just was not ready to finance the 2nd home without getting lawyers involved. That WA home has increased in 'value' by 25K in just 30 days- ridiculous. If they are not ready to purchase outright, and we are not ready to kick them out for a sale, we then met in the middle and kicked the can down the road a bit longer.

If you remember, the mortgage is $1600, but just recently increased their rent to $1400, from $1100.

Now that I'm talking about selling, I countered with no discussion of selling for (1) year, but an increase in rent to $2000. They agreed, so we are content with them in the house for another year, until they save enough for a down payment to purchase it outright. If the house tanks, we receive $2K. If the house goes past half a million, we still receive $2K, plus the home is still ours. Everyone seems happy.

Thanks again, folks!

ultrarunner · Mar 30, 2022

Always appreciate updates...

One thing I learned the hard way is WA property taxes on individual property have no limits...

I had an 80% increase year over year which left me shell shocked and changed my long term planning...

Sigarms · Apr 4, 2022

USAFpj said:
I have a second home (mortgaged) that I have rented to the same couple since 2014. They are Church-friends of ours, always pay on time, and I have not kicked in more than $100 for repairs since then. The rent ($1400) does not meet the mortgage ($1600), and the wife and I are ready to sell. The market, like everywhere else, is crazy- I owe $200k on it, but it currently appraises (Zillow) for $456k.

The renters have made an offer to purchase the house, but do not/can not afford the down payment and bank fees. We want them to stay in the home as well, and we also would like to avoid realtor fees, capital gains, and maintenance. We do not need a lump sum profit.

Their offer is $5,000 cash, and a monthly sum of $2150 for 15 years, perhaps even paying the total sum early. This equates to a total sale of $392K for the house. We are content with that.

Aside from the numbers, has anyone run into this scenario before? A real estate lawyer is a MUST for me, but others state that them increasing the payment for the house is just a better idea than our current rent set-up. I believe a contract is needed to protect them, as a lot of life's problems can get in the way in fifteen years- new HVAC, roof, appliances, etc...

Thanks for any insight.

I've only read the first 3 or 4 pages, apologies.

First off, you're a pretty darn good friend.

You've already paid these people $19,200 over the 8 years to live there as you've covered the entire mortgage payment basically giving these people $200 a month.

I've got to ask, if your mortgage is $1,600, why aren't these people paying the full monthly fee so you don't incur any expense?

The best advice I can give you is get the house appraised and come up with a realistic number you can actually unload the house for. If you only owe 200k on the house and you can actually get $456k for the home, offer it to these people to buy it for $350k

YOUR the one who bought the house, the house is YOUR responsibility. You've already lost 19k over the years renting it to these friends, and if you lose 100k on the house by selling it to them at a reduced rate, I'm not certain what more they can ask from you?

I would NEVER become the banker, you HAVE to let these people find financing on their own. Reality is if they can't afford to pay the bank, good chance that they can't pay you.

Personally, if they can swing $2,150 a month, they seem like they have been taking advantage of you. If a friend "loaned" me his house to live there by paying him rent, I would expect to at least take over 100% of the mortgage payment.

I could see doing what your doing for a child of mine, or a great friend, but even then it would be the full the mortgage.

Gosh darn it, I should have read the update on the last page

ultrarunner · Apr 4, 2022

Very good friend makes a darn good living being a Banker loaning on Real Estate secured by Deed of Trust...

Started when his father sold land and carried the note and parlayed that into an Income Stream...

"Trust" as in Deed of Trust to make your money work for you is his philosophy...

LD1 · Apr 4, 2022

Always good to have rental income exceeding the mortgage payment. Hard to go wrong that way.

But even as you were.... mortgage of $1600 and rent payment of $1400....I wouldn't view that as loosing $200/month.....or the $19k over the years.

This has to be looked at like an investment property. Instead of looking at it like sigarms....where you are loosing money, rather you have to look at it like you are buying a $300k-$400k home (investment) for only $200/month. You are still money ahead of and when you ever choose to sell.

If you could swing $1000/month....you could buy 5 investment properties. And for $1000/month....they'd be worth $2.5M in retirement. That sounds like a pretty good ROI to me.

But moot point now. Sounds like it's all worked out to everyone's likings....and bonus points you put money in the bank every month.

I bought my first (and still only) investment property 8 years ago. Rather than worry about cash flow positive (which I could have done on a 30yr note)....I opted to only finance 15 years and with $60k down. The first few years was break even. But rental prices have gone crazy and I have increased rent to pace the market. Now this little 3-unit triplex is about $1300/mo in the positive.

If you can get an investment property now and break even....or maybe even be a little in the red.....just wait. The mortgage won't change but rent goes up due to inflation. It's a small investment to own real property that will always have value. And the small bit you may be in the red during the first few years will payoff in the end

Sigarms · Apr 4, 2022

LD1 said:
If you can get an investment property now and break even....or maybe even be a little in the red.....just wait. The mortgage won't change but rent goes up due to inflation. It's a small investment to own real property that will always have value. And the small bit you may be in the red during the first few years will payoff in the end

I can't speak for the OP, but I believe you're comparing apples to oranges.

I could be wrong, but I don't believe the house in WA was an investment property (please correct me if I'm wrong OP).

Original rent $1,100 (just raised to $1,400 per the OP) house being rented out in 2014.

Starting in 2015 to 2020 for rent, that's a $30,000 loss at a conservative number.

I don't know many people willing to intentionally lose 30k over 5 years and hope to break even after that due to "market conditions". If you have that kind of money to not care, good for you.

All that said, I'm not a flipper or renter, so I don't know all the ins and outs.

Maybe it's just me, but I feel the OP was taken advantage of. All of a sudden they can now afford $2,100 a month instead of $1,400?

If the house is an investment, cash in on it now is the time to do so IMO.

LD1 · Apr 4, 2022

Sigarms said:
I can't speak for the OP, but I believe you're comparing apples to oranges.

I could be wrong, but I don't believe the house in WA was an investment property (please correct me if I'm wrong OP).

Original rent $1,100 (just raised to $1,400 per the OP) house being rented out in 2014.

Starting in 2015 to 2020 for rent, that's a $30,000 loss at a conservative number.

I don't know many people willing to intentionally lose 30k over 5 years and hope to break even after that due to "market conditions". If you have that kind of money to not care, good for you.

All that said, I'm not a flipper or renter, so I don't know all the ins and outs.

Maybe it's just me, but I feel the OP was taken advantage of. All of a sudden they can now afford $2,100 a month instead of $1,400?

If the house is an investment, cash in on it now is the time to do so IMO.

It's not "loose 30k and hope to break even"

Don't know about the op.....or in Washington, but the rental market is vastly different now than it was in 2014 or 2015.

Around here, everything is renting for about 50% more.

If rent was $600 in 2015....it's about $900 now for the same place. If rent was $1000, now it's about $1500.

It may not have started as an investment property. But having a mortgage on it....and renting it.....the difference of the two (even if a negative number like the OP renting for $1400 and paying $1600...is still not a loss.) The difference between the two is what you are paying for the property.

So in the OP's case....$200/month difference....over a 30 year mortgage is $72,000. You are saying that he is loosing $72000 but all I'm saying is he is buying a $300k-$400k for only $72k out of pocket. To me that is a significant ROI

goeduck · Sep 15, 2022

Does anyone have recommendations for landlord/tenant software to manage/automate the rent payments? I have been looking at SimplityEm. 2 home rentals now but looking at adding 3 for a total of 5.