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Hi Everyone. So here is the situation. My job is moving across the bay in Pinellas County, which will make my commute terrible. We own a house in Hillsborough County that we bought 2 years ago with an FHA Loan which happened to be the bottom of the housing market. We think we can rent it out for about $500 more a month than our current monthly mortgage on it.
We planned on renting something across the Bay. I contacted our old landlord when lived over there and asked if he had any rental properties available. He only has the house we rented a few years ago and he does not want to rent it but wants to sell it. He is wanting a fair/good price for it, but I am currently Cash Poor and doubt a bank will carry another note right now. However, he has shown interest in Seller Financing in the past.
Any suggestions on how I could get this house? I think we could sell our house in Hillsborough County for about $50K more than we owe on it.. but I have no desire to sell that house.
The only good collateral I possess is a 1955 Chevrolet Belair that is valued around $40K. I would consider putting a lien on the car but will not sell it.
The house in Pinellas has a new roof, good, HVAC system and great bones overall. It is assigned to some of the best schools in the area and is only a 5 minute drive to the beach. It is a cosmetic fixer so sweat equity would be easy to build in this house. New kitchen, bathroom remodel, circular drive, landscaping and refinish the pool is just about all that is required. Again... I have lived in this house so I am familiar with it.
Are you looking for someone to talk you out of something or for someone to give you a thumbs up go ahead to buy another house that needs work when you're, in your words, "cash poor"?
Are you looking for someone to talk you out of something or for someone to give you a thumbs up go ahead to buy another house that needs work when you're, in your words, "cash poor"?
I get a large windfall of cash every year in December and another nice large amount in spring. Due to being unemployed for 4 months this year most of the cash has been spent and the cash I get this December will be going to completely pay off credit card debt I will have the cash to fix up the place beginning early next year. With that said, the place is completely habitable, just needs to be improved.
Not looking for someone to talk me into or out of anything. I am asking if anybody has creative financing ideas. At any rate I asked the owner if he would be interested in doing owner financing. He said it is a possibility and will know more in about 30 days when the get an appraisal done and the tenant has vacated.
I think you would be biting off more than you can chew. Creative financing is a buzz word. You either have the money to buy something or you don't and have to leverage yourself to do it . That involves risk. How much you are willing to risk is up to you. You are already a loan owner on one house. Looking to be a loan owner on another house and take a note out on a car for 40k that's three payments. And you need to look at the wide picture. First have you ever been a landlord before? A new rental will require maintenance and if something big goes out you're gonna have to fix it. AC dies 5k heater 5k not to mention the basic repairs leaks etc. remember the renter is NOT required to do repairs but you are. And renters no matter how nice they seem they dont care mich because they will eventually move on. Hope you're handy cause a repair guy is gonna run you $100 to show up. That $500 a month ROI won't look so good if you lose your job or take a pay cut get sick etc.
sounds like a lot of risk for $500 a month in return which can be eaten up really quickly on repairs. And remember you have to pay income taxes on profit. You could be in the hole very very quickly if you don't get the right renters in the unit not to mention if your creative financing hits a hole in th road. Renting is not for the faint of heart. I've been doing it for 22 years but I never did any creative financing
Good luck
....think we can rent it out for about $500 more a month than our current monthly mortgage on it. he has shown interest in Seller Financing in the past..
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You answered your own question having rental income surplus of $500, and owner financing.... Having your closing on the new property, so it coincides with your tenants moving in. With their deposit and the surplus, you could have cash in hand.
Everyday look at individual's financial situations nationwide drafting resolutions to prevent foreclosures. My opinion think you are setting yourself up for failure due to your cash flow.
Your weakest link is your income - no doubt you're a seasonal self-employed worker. Through a profit n loss statement and bank statements, Adding your total year deposits, dividing it by 12 to show monthly gross income. After your expenses, the PnL shows your net income. Playing around with your expenses could make your self look better on paper than you really are.
Since your cash flow is your main problem. I would look at ways to reduce what is going out as well as generating other means to get cash in. One way is negotiating your credit card debt credit settling for less.
Another problem is being 4 months unemployed and lump sums of cash coming in twice a year. The solution is finding another means of income. I hear this a lot - no one is hiring. You may not find your ideal position, but jobs are available. One suggestion providing you have a computer, a digital camera, and a car. Look into an Insurance Adjuster. Nationwide there is a big demand from insurance company's.
I am going to recommend to physically sit down at your table and creating (writing out) a plan (for your business and your endeavor of getting the other home). I don't know you, but judging by your writing your all over the place.
Lastly another thought? Why are you limiting your self by only speaking to your former landlord?
Your weakest link is your income - no doubt you're a seasonal self-employed worker.
You made some very good point in your post. I am not a seasonal worker, I work full time and make significantly more than the median household in the state.
I think it is apparent that it's just bad timing and we'll see what we can do. I am not limiting myself to my previous landlord. It's just that the house is at a good price, I am familiar with it and know that it has great bones. The schools are great and my kids are familiar with the school and it's close to the beach.
He said Owner financing may be an option but will know more in about 30 days.
It sounds like a good deal to me, if he will work with your lack of a down payment. Really, the risk is all on him at that point, not on you.
You could ask him about a rent-to-own agreement, possibly with a small balloon when you get your spring infusion of cash, if you want to make things more fair.
Re: Renting out your other house -- this does indeed take far more work and money than people imagine. Becoming a landlord means taking on a part time job where you are on call 24/7, in a profession for which you have zero training.
At a minumum, I would recommend that you make the same assumption banks make when giving loans for rentals: You will get rent 9 months of the year on average, not 12.
Get a property management company, and read a couple of books on landlording (the one by that title is particularly good).
Realise your rental-owners insurance will be about double what your homeowners was on that house. And that your mortgage company has the right to demand immediate cash payoff of the balance of your loan if they feel like it, since they gave you the loan as a homeowner, not a landlord. I have never seen it happen, but standard mortgage docs allow for it.
I think we could sell our house in Hillsborough County for about $50K more than we owe on it.. but I have no desire to sell that house.
First things first. I think you should seriously reconsider selling your present house. If you've lived in it for two years, you can sell it and the profit will be tax free. If you rent it for, say, 5 years or so, you will lose that opportunity to take that profit without paying federal income taxes on it. You could flip the $50K profit into fixing up the new house (or at least keeping the nest egg handy in case you needed it). After two years or more, you could again sell for a tax-free profit. To me, this strategy would be better than renting.
As far as owner financing there are basically two ways to do it:
1) Buy on a Land Contract (or whatever it might be called in your state). With this method, you enter into a contract to purchase the house but you don't receive the deed until the contract is paid off. The key things to consider include the interest rate, the amortization period, whether there is a balloon payment due after a certain time or whether you can make payments for the full term of the contract. Whatever amount of the purchase price you don't initially pay the Seller as a down payment would be paid in (usually) monthly installments, so that the full purchase price, including interest, would be paid off by the end of the contract (or paid until a balloon payment is to be due, usually paid through re-financing). You'll need to review amortization tables to determine the amount of the principal and interest payments which would be due for certain contract lengths.
2) Purchase Money Mortgage. With this owner-financing method, you simply close on the house in a regular fashion, but instead of a bank providing the loan the owner does. The deed transfers at the time of closing and the loan is secured by a mortgage on the house. The same amortization and length of term issues come into play.
With both methods, it's important to do your due diligence and it's a good idea to get title insurance. To make sure that everything is drawn up correctly, engaging the services of a qualified real estate attorney would be recommended.
Of course, there are other options including rent-to-own (lease-to-own) or rent (lease) with option to buy...but I'll leave it at that.
EDIT: You'll also need to determine if you'll pay taxes and insurance separately, or whether those payments are folded into your monthly payment.
Last edited by jackmichigan; 09-07-2013 at 07:08 PM..
First things first. I think you should seriously reconsider selling your present house. If you've lived in it for two years, you can sell it and the profit will be tax free. If you rent it for, say, 5 years or so, you will lose that opportunity to take that profit without paying federal income taxes on it. You could flip the $50K profit into fixing up the new house (or at least keeping the nest egg handy in case you needed it). After two years or more, you could again sell for a tax-free profit. To me, this strategy would be better than renting.
I did not know about the tax advantage of selling a house that you live in. I did some research because of your post. Thank you!
Thank you everyone for the advice and insight.
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