Re: When rents don’t keep up - Posted by Bill Gatten
Posted by Bill Gatten on November 08, 1998 at 19:34:47:
Great question! I’m ready to move to NC! This is great for me.
Here’s what I do (forgive me for constantly harping on the land trusts, if you’re following any of my other posts; but in all candor, it truly is as close to magic as anything I’ve seen):
SFR (houses, condos, twnhses and PUD’s) property owners who want more rent, need merely: A) Sell their tax write-off to their tenants (e.g. if your tax deduction has a cash value of $300, sell it for $350). If they want even higher rent, they B) sell a portion of the equity build-up in their mortgage; if they even MORE rent, they sell the tenant a potion of the future appreciation (could be worth a lot in a market like yours).
Its owner places the rental property into a title-holding trust
The tenant is made a beneficiary of the trust
The lease agreement is redrawn to include payment for all principal, interest, property tax, insurance homeowner’s dues, PMI and everything else, including a positive cash flow to the owner.
The agreement between parties is that this arrangement will continue for a specified period of time until the tenant can re-fi or get a new loan and take the owner off the existing financing.
In this scenario, the “landlord” can completely eliminate the burden of maintenance, management, vacancies and negative cash-flow without giving up anything that is not replaced by something better. And best of all, remember that anything “given away” in the form of future appreciation and/or equity-build up (principal reduction in the loan) is more than made up for in the increased payments and freedom from management, vacancies and maintenance, whether the house goes up or down in value.
The key: People who are renting pay (without knowing it) 150% of their rent in income tax. In other words, if you pay $1,000 per month for rent, you have to earn an additional $500 per month over and above that amount, in order to pay the government income tax on the money you pay your landlord. For example, if you rent for $1,000, you have to earn $1,500 each month so that you can pay the government 1/3rd ($500) and have enough left over to pay your landlord $1,000. If, on the other hand, you pay $1250 per-month to own the same house, there is no tax on interest and property tax. And you just reduced your “rent” by $250 per- month, while increasing the landlord’s income by the same amount: not to mention the money that will be made by sharing in the future appreciation and equity build-upon in the property (in exchange for taking over all maintenance and signing a long-term lease).