Downsides?
my first rental is on the main street in my city. so, I had my son put a for rent sign out about 10 p.m.Wednesday night. I was going to call the newspaper on Thursday for a Sunday ad. Well, Thursday I had so many calls I didn't know what to do so after the third call early Thursday a.m. I decided not to call the paper and to hold an open house. I told everyone else calling to either come on Friday evening from 5 to 7 or Saturday a.m. from 9-10. I probably had 50 people show up. I received 10 apps. About 15 people asked me if the house was rent to own. I had no intention of that when I purchased the property as I'm setting up my retirement in 10/15 years. Anyway, I told them all that at this time it was only a rental but if they rented the house they could talk to me about it again after the first year.
So, even though I'm going to have a year or so to think about this, what are the downsides? When I started reading this forum a few months ago someone stated that most times the options are never exercised and you keep the down money plus the higher rent - so that would be in the plus column. I remember another plus is they then have it in their minds the house is theirs and they take better care of it and take care of improvements themselves.
But, there has to be a downside. Anyone know what it is? I also think most of these people can't afford a downpayment, other than at income tax refund season - most of them didn't even have the refundable $25 application fee.
I think your initial experience is very accurate, many people want to buy, but can't arrange the financing - including the DP.
My question to you regarding the potential "downside" is how a quick sale would fit into your plans, if the T/B wants to get a new loan in a year, are you prepared to put the money you get back to work fro you? You wouldn;t collect the increased rents, nor be able to take advantage of the property appreciation.
Since I can always seem to find another house to buy, I'd be inclined to hold out for a week or so for a L/O with a minimum 2% down payment; if no one jumps at that, then go ahead and rent it to your best selection.
GOod luck, and please let us know what youdecide to do!
Congratulations on such a good response to your "For Rent" sign without have to spend money on advertising the property. The open house was a great idea also.
As far as the Lease Option goes, remember you own the property and therefore you control what you do with it. It seems that you are trying to acquire property and the hold and rent to build long term 10-15 year wealth. There's nothing wrong with that if you are prepared to be a Landlord for that period of time. You are correct that you can attract a better tenant, collect more (non-refundable) downpayment, and the tenant buyer will normally take better care of the property and may improve the property. The downside that I have experienced is that they don't exercise the option to buy and you must then remarket the property (but you keep the option consideration which is a plus to you). They can leave and leave the property a mess but you could have the same situation with a regular renter. I would think that your security deposit on a regular rental would be nowhere near what an option consideration would be. The other downside, if it is one, is that you must sell the property to them if they exercise the option to buy at your agreed upon sale price. Remember, though, that this sale price is calculated at what the property will be worth at the end of the option term. Good Luck in your decision.
Dave
[addsig]
Quote:Remember, though, that this sale price is calculated at what the property will be worth at the end of the option term.
This doesn't seem to jive with what I've been reading about L/O's. Can you clarify what you're saying for me?
AT THE END OF THE LEASE? That doesn't seem to be in line with what I've been reading either. The way I understand it is; You lock in the "NOW" price with a lease option which makes the L/O attractive if you're able to extend the lease portion of it.
In a sandwich lease arrangement, you lock in a price at or below today's value with the SELLER. But with your T/B, you sell the house for tomorrow''s value. I just raise the price to a little higher than I expect the market increase to bear. But I suppose your Contract could say FMV at time of purchase.
as always, thanks everyone. I appreciate your sharing your experience. at this time, I'm not going to do anything other than what I planned, rent it out. I just didn't realize so many people would be interested in rent-to-own (the term used in my area). this house will give me a positive cash flow of 2x my monthly expenses (not counting vacancy & maintenance) and will be paid off in 10 years. so, for at least one year, I'm sticking with my original plan - buy and hold. after one year I'll see if I still feel the same way as my plan is to purchase 4 properties a year.