Mike, you’re a “glass is half empty” kind of guy, aren’t you?
They DO pay the taxes and insurance, because I collect it from them, along with the principle and interest.
Yes, some defer the maintenance, and some end up not refinancing you out at the end of the ballon, or if you’re like my friend David Alexander, when the interest rate gets too high (he sells on an “ARM”, except it only adjusts upward).
And your down payment or Option money should be hefty enough to give them cause to vacate. But Mike, nobody said this business is without some risk.
I’ve owned a home in Cordova,TN (outside of Memphis) since 2001. The house has not appreciated so much as a penny since I bought it, due to the Memphis market being undervalued with too much inventory. The rental and lease option market seems strong here however, and I’m wondering if after four years of just renting it out if I should consider doing a lease option on the property. The home is worth 130k, I owe 119k on it. Has anyone here been in a similar situation? It cashflows ok, but I am an absentee landlord since I relocated back to FL, so I’m looking at the home as more of a liability right now than an investment. Since it’s so far away, I don’t have any way to sell it myself, and if I listed it with an agent, the commission and closing costs would bury me, or at best I would barely break even. Any thoughts on this scenario?
Lease/option is a very good way to get somewhat out of the landlord business. Also consider Owner Carry, which can be done via Land Contract or via a Wrap Mortgage. I personally perfer the Owner Carry route, as it completely removes you from the landlord position.
Both of these stategies are complex and have positive/negatives. I highly recommend you get Broncheck’s courses, “lease/options” and “alternative real estate financing”. Legalwiz.com
Don’t kid yourself. Neither a lease-option or owner financing takes you out of the landlord business. True, it theoretically may transfer the maintenance, taxes, and insurance responsibility to the “buyer”, but in reality only a relatively small percentage of these “buyers” actually follow through and purchase the house. Typically, they just don’t do the maintenance, don’t pay the taxes, and don’t pay the insurance (unless closely monitored), and then you have a rehab or worse when you re-acquire your property. Furthermore, with a lease-option, in many states your are required by the landlord-tenant law to maintain the property. You can put whatever you like in the lease, but that doesn’t remove your liability under the law.
Please note that I’m not against lease-options. If you can get a reasonable option premium at the beginning, they’re a great way to go. However, just don’t believe the seminar hype that you’re out of the landlording business.