Best Way To Sell A Rental Property?
I wanted to see if anyone has had experience selling a rental house using a land contract(owner financing) or other method in a neighborhood where people are unlikely to be able to get a mortgage on their own. I considered using a L/O but that seems like it would suit a homeowner neighborhood more than a rental neighborhood. The people in this neighborhood are never going to have credit good enough to get a loan so that seemed to eliminate L/O but I've never used one so I'm not certain about that. The thing that sounds good to me about a land contract is that I could essentially collect the same amount each month for the next 15 years which would give me an excellent profit and give the tenant a house of their own. Also, I would not have to worry about repairs or liabilities. In my state, if they get behind on the payments for 45 days, the contract is made void and you can consider the payments they made as rent and evict them(more or less) I'm just not sure if people in this neighborhood would like to sign a contract committing themselves to a 15 yr contract and living in the same house and same neighborhood. I don't see any drawbacks to trying other than losing rent for awhile but if someone else has tried this or something else I thought it might save me some time or direct my efforts in another direction.
By the way, I've decided not to try going the route of selling to another investor because they obviously would want a better price than I would be willing to give the house up for since it does cash flow very well. I'm just starting to try and consolidate my holdings into certain neighborhoods, type of housing, etc.
I'm somewhat local to you. You could probably expect 5-6x gross annual income for a sell to investor in your area . You have indicatated this is a fairly low end area, maybe consider secton 8 or a lease-option.
You did not give any indication if this deal would be good for the buyer.
What is the average rent vs. the LC? If you presented this as a way to lock in the rent so that they would never have a rent increase some folks might like it. As we are talking about low end you are not likely to get much interest from tax deductions the buyer would receive.
In OR the LC does not allow you to do an eviction once the equity built up goes over 25% (I think that is the number). So, it will only be in the early years that the contract could be voided and turned into a rental (and then eviction). Not much of an issue once they have a lot of equity but worth checking.
If you like the area as a long term hold, then consider putting in a clause or creating an option so you have the first right of refusal if they go to sell. You might not want to have to buy another place in the same area when they try to cash you out (when they move on).
John
[addsig]
Thanks for the feedback. I haven't actually settled on either a price, down payment, or interest rate. I did plug some different combinations into a mortgage calculator though and the numbers came back at about $200 to $275 monthly for the mortgage payments to me. The insurance would be extremely low. Something like $7 (that's not a typo!) a month. The house rents very easily for $300/month. I think it would be an excellent deal for someone in the neighborhood if they were normally going to rent. I'm not certain what the law is in NC about possibly reaching a point where you couldn't evict them and would have to go a more formal foreclosure route. I hope to get more details from my lawyer tommorrow.