House info – Rent to own or Contract for Deed

I am building a new house and am going to rent our current house. A former co-worker of my wifes stopped by today with his family to look at the house as they are looking for something to rent.

They currently live 2 blocks from our house, and have kids going to the schools in the area. He mentioned they are interested in a long term lease or possible CFD or rent to own…..as the house is something they would be interested in buying at some point and would like their rent to go towards the purchase if we were willing.

I am to up-side-down on the house to sell at this point.

Can anyone point me in the right direct as to who I can talk to about the possible risks involved in entering a deal like this? I would most certainly get a lawyer involved if we decide to proceed….. I will be consulting with a family member who is in real estate, and our current mortgage guy who I have done business with for a number of years now. Just wanted to get any additional thoughts on it.

Anyone have any advice?

I am aware of their previous position and losing a house due to layoffs. I just want to make sure I protect #1 here!

make sure that your current mortgage will allow a contract for deed..most require payment upon sale of the residence

This is a when you need to have your current loan document checked by your attorney. Previous poster mentioned some clause that may prevent renting or contract for deed. Plus if you you go either route you need to have iron clad documents to protect your rights.

Mwal

Quote:

---

This is a when you need to have your current loan document checked by your attorney. Previous poster mentioned some clause that may prevent renting or contract for deed. Plus if you you go either route you need to have iron clad documents to protect your rights.

Mwal

---

X2

Any personal sale, Have your attorney check and provide any legal forms.

If you have an FHA or other Gov’t backed Loan, also check to make you can move out. Many Loans require Owner Occupancy. My brother found this out when he moved back here from Ohio a few years ago. He had to move back and live in the home until it sold.

Good Luck

couple thing I learned in just the same situation..

My advice.. if your concidering first of you are at some risk no matter what..

first thing is make a surprise stop by there current location.. ask to come inside and see how they live.

Do they take care of what they got or is everything a mess and not taken care of..

get an attorny.. dont enter anydeal without a nice downpaymen non refundable..

If there not willing to put some good cash on the line.. dont bother no matter what there excuse is for not having at the very least 5G down if they cant come up with that they cant afford a house!

check on there payment history for utilities and rent..

dont even think about renting and allowing pets.. you couldnt beleive how some people can live..

bottom line cover your protect whats yours and make sure they got something on the line..

TheguN

If I was in that position I would write up a rent to own contract with as large of a down payment as you can talk them into. With the down payment being forfeited if they do not buy the house. You will still be on the hook for repairs as they are renting and you own.

C/D is not an option until you pay off the mortgage (however I am not an expert)

A couple other words of wisdom:
Owning two houses is a real PITA

If you’re not going to cash flow the rental I’d try everything I possibly could to sell it even if that means bringing cash to closing

Keeping a rental house that you don’t want (ie are not making any money on) is like a headache that will not go away

Renting to friends is sticky business

I in no way have enough money to possibly sell the current house….so that is not an option. Renting is something I have been planning on for a while, at least until the mortgage is close enough to me being able to sell. If renting works out where I want to keep doing it, then so be it. I know I will not be making money on it.

To clarify, we are not renting to any friends. It’s a former co-worker of my wifes and they are not “friends”. I will be conducting all communication with the coworker myself as to make sure not to imply there is any “friend” deal happening.

I would encourage you to stick with a rental agreement, and avoid a contract for deed.

If you extend them a contract for deed – you are using up your debt carrying capacity with the mortgage in your name, and removing yourself from the drivers seat to make any decision of retiring that mortgage at a time of “YOUR” chosing.

In other words, if you want to buy something, your debt ratio is going to severly limit the amount of debt you will successfully be granted. Then to fix that – you can’t decide to do something else with the contract for deed – you have an agreement and timeline that limits your decision making.

Offer to rent, and as soon as they can obtain a loan you would be more than happy to consider a purchase offer – relieving your liability and exposure.

Motivate them to get their ducks in a row ASAP.

Have you refinanced your current home under Harp to make the potential rental property cash flow better???

Most big name lenders don’t give 2 rips about if you occupy the residence or not, they only thing they want is the minimum monthly payment, whether that comes from a renter paying you or if it comes from your accounts.

C4D are very popular right now with people whom have lost their homes and also for people who want to upgrade but cannot sell due to negative equity. Do NOT add them to the deed of the home at any point. Some folks make that mistake and have a hard time deeding the same individuals off. Draw up a rental agreement with the intent to purchase, with a lofty non refundable down payment. Lots of people are in this situation right now and if you find the right renters you can allow them to make your current payment for you.

I have done a contract for deed and I have done many of refinances of contract for deeds, best to have a attorney draw up documents, have them notarized and recorded as well.

Refinance to get your payment down to the lowest possible and to take advantage of any programs that are available. That benefits you no matter what.

Rent it vs CFD? Get professional advice if you are going to seriously consider a CFD. To me, CFD = Cluster F### waiting to happen, but that’s just me.

Also, keep in mind, if you rent the property there are tax deductions that also work in your favor.

What you do next depends on your finances and motivations. Are you in a position to pay for 2 mortgages for 3 months or more if the tennents skip town one day and leave you holding the bag? You have to be if you’re going to rent, because that situation will happen to you if you own rental properties long enough.

Then you need to be all set up to be a landlord. Contracts, background checks, insurance, etc. Don’t look at it based on just the “possible” party that might rent it. You’re essentially going into the landlord business because once you pull the trigger and buy a second house, you’re locked in at least until you’re back to even on the equity scale.

Grouse

Thanks guys!

I have ruled out CFD, and I think we decided not to do the rent to own. At this point we are planning on renting. We have the rental contract ready, and the house is getting inspected. We have a number of people interested, but we will see where that goes.

We have the property advertised on CL. I assume most people will want to see the property before signing a lease. I have a number of people that want to come see it, but should I have them fill out a rental application before allowing then to come and see the property?

Also, the house was refinanced in the past 12 months….so it’s about as low as I will be able to get it.

BTW, I am taking a rental course later this month put on by MHA. I get my rental license much cheaper from the city by taking this class.