Investing in Real Estate - Owner finance or Rental

[Lizap]

Originally Posted by RedneckRebel

I want to sell as owner financing.

There are risks, but I have known people who have done extremely well doing owner financing.

[LordSquidworth]

Originally Posted by RedneckRebel

I want to sell as owner financing.

For a building?

Absolutely not.

Too much liability.

Poor return.

For land?

Add a couple points.

Require big down.

[mitchmiller9]

Originally Posted by RedneckRebel

Here is my thinking of OF vs renting.Am i missing something? It seems more here likes renting, I am leaning towards OF

Renting:
Cons - have to deal with renter complaints, will have to maintain property (ie repairs), evictions if necessary can be hard in Florida
Pros - can leverage equity in rental house, has more tax advantages

Owner Finance:
Cons - (as I understand ) has less tax advantages vs renting,
Pros - dont have to maintain property (since the tenant owns it), foreclosures are allegedly easier than evictions (in Florida), if it comes to a forclosure I can resell the house, I can sell the note after it is seasoned for quick cash

Am i missing something?

One thing you're missing is that if you own a rental that is fully paid off and you want monthly income, you may earn more per month if you sell the property and take back the note. You will pay tax only on the down payment at the time of the sale. The rest can be deferred over the lifetime of the loan or until the loan is paid off.

That was indeed my experience, where I earned a higher return (interest) from my note than I did from rent. As mortgage rates rise, the odds increase that you'll be able to get a higher interest rate for your note so that the monthly proceeds will exceed what you can net from rent (after expenses) and you'll have less money tied up after you account for the down payment. I offset my tax liability on the down payment with a capital loss from the sale of stock.

I also lucked out that my borrower decided to pay off early because I am holding a stock in a biotech company that sold their primary asset and passed some of the proceeds to shareholders in the form of a large special dividend. Unfortunately, the price of the stock declined about twice the sum of the dividend, so I'm sitting on a large capital loss while I wait for drug trial data points in 2018. So, I swapped shares I was holding at a loss for new shares at the current price. I will offset my entire capital gain and my entire unrecaptured 1250 gains from the sale of my rental property, with that stock loss.... and hopefully at least one of the three drug trials will be successful and the price of the stock will recover by first Q of 2019. If it all pans out, I will have swapped a 25% marginal tax rate on unrecaptured 1250 gains with a 15% long term cap gains tax rate.

[mathjak107]

owner financing is the last resort way for me to ever want to sell a property .

we have two co-op apartments in manhattan by central park which have stabilized tenants in them . we offered them the apartments at .50 cents on the dollar and we would finance . they were not interested as they are in their 70's with no heirs . but other than that never would we do it .

for one thing you can bet if anything goes wrong they will expect you to pay to repair it .

the other is laws change all the time . we procrastinated selling some lease rights by one year .

capital gains rates went from 15 to 24% and we got hammered .

the other thing is we were within 2 years of medicare and the sale brought an increase of 600 a month more in premiums because medicare goes back 2 years .

why would someone want to pay you more than a bank charges unless they can't get a mortgage from a bank . so if a bank won't loan them why would i ?

i warned my buddy about holding the note and he did and ended up getting stuck .

now he got the property back to support in retirement as well as no income . the worst part was it was during the down turn in 2010 and values took a hit so now he had to try to sell it at the worst time .

back in 2014 we sold some lease rights to an investor group . we got 90% in cash and gave them 4 years at 2% plus libor to pay off the remaining balance .

mistake - we gave up so much on that money that could have been invested in one of the best bull runs of recent history .

so all in all , i much prefer getting my money , knowing my present tax situation and done as well as no ties anymore to the property .