Posted by Marty Weisberg on October 25, 2000 at 14:51:13:
I am not sure exactly what you can do at this point in terms of changing the lease that you have with your current tenants. You need to figure that out based on your local laws. If I am reading what you wrote right, then with rent credits after the first year they can buy the house for $112,800 ($120,000-$7200 rent credits), second year $112,000 ($130,000-$18,000 rent credits) and the third year $116,600 ($140,000-$23,400). According to your scenario you are selling the house in each of the three years for less than the low end of what you think it is worth.
The problem as I see it is that you made it to easy for the TB in the first place. I am sure that they were hoping that as time went on that they would be able to make the higher payments and that has just not happened. You, in my opinion , put yourself in a tough position especially since you are not getting a higher price for the property as time goes by.
I think a better way to do this type of deal and maybe still a way that you can do it, is by using a PACTrust.
What you would do in that situation is:
- Put the property in a land trust (PASCTrust).
- Find a resident beneficiary that you could put in the property. this can be either the existing tenants or new tenants if you can get the existing tenants out.
- Have the Resident Beneficiary come in with something like $6K to $8K up front.
- Have them lease the property from the trust for say $1,200 to $1,400 a month or higher(I am not sure what your market will bear)
- Give them say 3 years (or whatever time frame you like) to buy the property at the then appraised value.
In this scenario above the resident beneficiary is getting a host of benefits that he/she are not getting with the lease option. Included in this is the ability to take the active tax write-off for both interest expense on your loan and the real estate taxes. Thereby allowing him to pay more a month in lease payments and actually saving money.
You on the other hand are not giving anything up in giving him these advantages.
Let me know if you have any questions. I kind of did this in a hurry and may have left somethings out.