Posted by Ronald * Starr(in No CA) on July 01, 2003 at 09:06:52:
There has been discussion of these in the past, you might want to do an archive search on the topic or, for more recent items, do a google with “creonline.com” and “2003” in your search.
There are a couple of things which could be a problem. If the developer goes bankrupt, there may not be any increasing value to the property and it may be “orphaned” in field of tiny lots.
If you decide to hold on after the lease period is up, what rent rate can you expect? I’d guess way below the $2200-2500 a month. If that is so, it probably will not make sense to continue to hold the property for a rental. Then, when you resell, for any profit you get you will probably have to pay ordinary income on any gain in value, not capital gains tax. You might want to consult with a tax adviser on this matter.
What would be the transaction costs? Title insurance, escrow fees, lender costs, appraisal, credit report and the like. This is money you do not get back. If they are very large, you may find that you actually make less money on this short-term rental than you thought. You might be better advised to put the money out buying less expensive properties which will provide a better rental income for a long time.
I suppose the houses are attractive because they are pretty. ANd, they may be somewhat better finished than the typical property in the subdivision. If the developer can pay the rent every month, that is a plus.
Good Investing**************Ron Starr*************