Long Distance Sub2???
Hello Everyone,
I have the opportunity to acquire some sub2s that are not in the area where I live. They are about 4-5 hours away. Some are in my state (OH) and a couple are in NY. If I acquire these properties, a L/O would be my exit strategy.
I know I need to do due diligence on these properties if I am going to consider this any further but does anyone have any thoughts on long distance or out-of-state sub2s?
Amelia
They are no problem has long as you do a pencil search with a title company, and have your l/o tenant in place. Get the deed I say. Due dilgence. :-D
Thanks for your response. I thought a long distance sub2, with the proper due diligence and exit strategy in place, would be ok. This is something new for me and I didn't want to pass up an opportunity just because the property is out of my original "farm area."
Amelia
Amelia:
I would also make sure I knew what the market was like in the "remote" area you're buying/selling in. Find out the going market rents, FMV's, etc. It may be easy to take the houses sub2, but if you can't get rent or sell them, it wouldn't make sense.
Another thing: can I ask why you're looking at L/O as your exit strategy? Are you looking to increase your monthly positive cash flow? Are you working on a long-term buy & hold strategy?
For me (and this is just my opinion) why would you want a tenant-type situation in a property that you can't get to very quickly, like for "just dropping by" to check on status, etc.? Do you know local contractors/handymen that can make repairs on a 24-hour basis (my toilet isn't working, etc.) Of course, you probably would write something into the lease agreement regarding repairs and maintenance, but still, it's not your home town and you'd need to be covered.
Is there a reason why wouldn't you do something like a 1- to 2-year contract for deed as an exit?
Andy
Arykatz,
Those are excellent questions and I consider them a part of my due diligence. The properties aren't in remote areas or in major metro cities, so checking FMV is very important.
I don't want to be a long distance landlord. I thought having a tenant buyer in a LO would take care of that by writing the tenant's maintenance responsibilities into the contract. Do you think a land contract has more CYA value than a LO? I wasn't sure I could do a land contract on a sub2.
Amelia
Amelia:
Yes, if your state allows it (or the remote state does) you can sell on a land contract--that's the nice thing about taking property sub2: it's your property once you have the deed and you can sell it any way you wish.
It's not that land contracts have more CYA than a L/O. To me, the biggest difference is that on a land contract, your buyer is just that: a BUYER. A lease/optioner may end up being a renter, never excercising the option to purchase. With a land contract, your buyer has to make a pretty substantial downpayment and they consider themselves OWNERS, and as such are more likely to take better care of the property. Also, any improvements on the property they make are theirs to keep when the contract term is up and they get the deed. Another benefit is that if they decide NOT to stay at the end of the contract, you keep their downpayment and can then find another buyer (with another downpayment for you and a new land contract, perhaps for a larger purchase price due to the appreciation on the property).
Andy
Thanks for your response. The more you talk about LCs, the better they sound to me. I DO NOT want to be a landlord. (Though I might have to be a short term landlord in order to acquire some properties, then transition them into LCs)I would much rather deal with buyers.
Thanks again.
Amelia
It's not clear to me that you'd be necessarily better off with a "buyer" under a L/O or an LC. Much depends on your personal evaluation of the qualifications of the buyer. Harder to do if you're long distance.
Do you think you can coax a larger downpayment from an LC buyer than L/O in your market?
Ultimately, the downpayment is your protection.
Make sure you know the eviction/foreclosure procedural tradeoffs for L/O vs. LC in your state.
No, I don't think I could coax a higher downpayment for an LC vs an LO in this market. As I understand, in my state a defaulted LC calls for foreclosure, while a defaulted LO is an eviction. And whether the property is local or not, a default either way would be a mess.
The biggest advantage I see at this point to a LC over a LO is liability. If I sell a property on LC, the buyer is totally responsible for the property. With an LO, I could write up (or find) a contract that makes the tenant/buyer mostly responsible for repairs, etc., but I still could be held responsible for anything major.
I appreciate the help I'm getting in thinking this through. Any more thoughts on this?
Amelia
What part of NY? I'm in the downstate area. Be very careful to screen your renters carefully! If you need another pair of eyes in NY, let me know.
Thanks LearntheRules. I decided to focus in on properties in my state for now, but may need that second set of eyes if it I broaden my horizons to downstate NY. Thanks again.
Amelia