Home For Sale, How So I Rent It Out With Opt. To Buy
I have a home for sale, I am not having much luck. I do have someone that is intrested in renting with option to buy. As the owner what do I need to do? How does their monthly rent go towards buying the home? I still owe money on the home.
Hello Garvin,
Please explain more of your situation. What do you mean you wont be doing an offical closing? Its up to you whether or not you get the property recorded or not but some states require you to record if you have an outside appraisal done. Please explain more.
Mr. Cartier
In other words, the owner of the property will just sign over the deed to me once I give the owner a downpayment. Then he will finance me for 3 years. I figured once he gives me the Deed I will get it recorded at the County Clerk office. The house is in Niagara Falls NY & I live in PA. The owner also has his own property management business, & he threw in that he will manage the property for a year for free.
Figure out what it would take the make the property cash flow something decent each month and see how much you can finance it for while keeping in mind the cash flow.
While one can purchase several rental properties for less than appraised value, can you get those properties to cash flow?
Your limitations on the number of investment properties you can afford will be the financing, and the rental income.
First, financing. I suspect you are hoping to finance your entire purchase price provided you can purchase below FMV. Unless you have substantial assets and an excellent credit score, I suspect you will have trouble finding a lender that will lend more than 90% of your purchase price on an investment property. If you want to avoid paying mortgage insurance premiums, you will have to finance 80% of your purchase price.
Regardless of the discount to FMV, the lender will use your actual purchase price to determine your maximum loan amount. For the $100K property that you get under contract for $80K, your lender will finance $72K. You will need to bring $8K plus closing costs to the settlement table to complete the purchase.
The number of investment properties you may be able to purchase with traditional financing will be limited by the amount of cash you have available for the downpayments and closing costs.
Your second limitation will be cash flow. It is not enough to get a rent equal to your mortgage payment. There are expenses of ownership and rental property operation other than your mortgage payment. Leasing costs, advertising costs, repair costs, cleaning and maintenance costs will hit you at some point in time, but none are included in your mortgage payment.
If you take all your ownership and operating expenses (such as property taxes, haxard insurance, repairs, maintenance, vacancy allowance, advertising costs, leasing fees, legal fees, license fees, trash removal, and utilities not paid by your tenant) and subtract that amount from your gross rental income, you have your net operating income (NOI).
As a general rule, your NOI needs to be equal or exceed 125% of your monthly loan payment (principal and interest only). If it does, then your property will cash flow adequately enough to handle all the unschedule repairs that always come up. If it does not, then you can either make a larger downpayment to lower your loan payment, or look for another property.
I always suggest that new landlords build up a fairly healthy cash reserve, too. When you have an extended vacancy, you still need to make the mortgage payments. When you need a major systems replacement (e.g., roof or HVAC), your cash reserve will be tapped to pay the replacement costs.
Since you have "no debt" right now I assume you are renting right now. Maybe you can start then with a rundown 2,3 or 4-unit building and move in yourself so you can get a cheaper loan for owner occupied. Then rehab, bring up the value drastically, then take a HELOC and you those funds for your next property. (Just an idea)
hey what area of Buffalo and syracuse are looking at