Home Selling in Zephyrhills>Question Details

Rlaferriere, Other/Just Looking in Zephyrhills, FL

I want to sell my house and rent it back; Is there a company outside of the Deed-for-Lease program that I have been hearing about?

Asked by Rlaferriere, Zephyrhills, FL Sun Mar 28, 2010

Every time I try to look it up, I am finding programs in the UK and this D-f-L program through Fannie Mae.

My major concerns would be if any thing were to happen in the market (really good or really bad), I would want to be protected or not be forced to leave. I would like the option to do so on my own terms in a few years. The bank and I own the home; I am current in my payments, taxes and insurance; I am not at risk of foreclosure. I may have a little equity now, however due to the major slide in the market, not much.

In addition to my original question, if companies do this, have you had experiences with them? Good, bad or indifferent?

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Answers

4
I don't know about whatever company you've been hearing about, but--sure--it's possible to do.

The question, really, is: What is your intent? What's your goal? What would you like to accomplish from the transaction?

I'm not a lawyer or an accountant, so this isn't legal or accounting advice. Please consult those professionals as appropriate.

The answer to your question really depends on how the documents are constructed.

Keep in mind, though, that the investor or company you deal with is going to want to make some money, too. So while it's understandable that you'd like to protect yourself in case of a major market shift, so would the investor. If the market goes up 30%, the investor would like some of the profit. And if the market goes down 30%, the investor would like to spread some of the risk.

You can't have the best of all worlds: Moderate rent on your terms in case of a stable market, plus protection against any market shifts. Still, it all depends on the way the transaction is constructed.

You also run into a problem in that the cost of ownership in most areas is higher than the cost of rent. Put another way, if an investor bought your property, it's likely his cost would be higher than he could charge you in rent. And I'm guessing you'd like to reduce your monthly expenses. If you had equity in your property (or, put another way, if you owed less on your property than it was currently worth), you'd have a better chance at reducing your monthly payments.

In that case, you could do what's called a "subject to." You'd deed the property to the new owner subject to the existing mortgage. The old mortgage would stay in place (violating the lender's due on sale clause), and the new owner would be responsible for paying it. The new owner could then rent the property to you. The risk to you is that the new owner would fail to make the monthly mortgage payments.

It'd be far less desirable if the new owner had to go out and get a new mortgage. The additional costs involved would often make the transaction undesirable. And if the home is worth less than your mortgage, then you'd be faced with a short sale.

You could also use a land trust to accomplish the same thing: You'd transfer the property into your land trust. You'd be the beneficiary of the trust. Then you'd add the investor to the trust. The owner would be the trustee. You'd pay your rent to the trustee every month. That'd protect you more than a "subject to." However, the question still is: What is your goal in such a transaction?

As a renter, you protect yourself by having a long-term lease. Or a moderate-term lease with right of renewal. For example, you could have a 3-year lease with the right to renew it for up to 7 additional years in one-year increments. That'd protect you, but frankly wouldn't be too attractive to most investors. It would lock the investor in, not permitting him to take a profit from the sale of the property.

Again: What's your goal in such a transaction? It's a lot easier to tailor a solution when we know what you want to accomplish.

Hope that helps.
2 votes Thank Flag Link Mon Mar 29, 2010
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
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I am confused.
I see no benefit to you selling the home and leasing it back.

My recommendation is to talk with your CPA about this question. IMHO the tax implications alone would not make this transaction worth your effort, if you could find someone who would want to buy it and lease it back. My guess is the lease price, to make it worth their while, would cover their Principle, taxes, interest, and insurance (PITI), which is what you are paying now, but for you there would be no tax break.

Makes no sense to me.

Good luck.
1 vote Thank Flag Link Mon Mar 29, 2010
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
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I am aRealtor & an Attorney licensed only in OH, so I do not & will not represent you. So my comments are only my personal opinions.

I don't understand why you want to do such a transaction. It would help if you explained further. So, I will make some assumptions.

The are a number of issues. Apparently you want to do a private transaction whereby you simply deed your property to a person or entity & simply rent from the new owner. You said you still have a mortgage on the home. Every mortgage out there has a due on sale clause. So, as soon as you deed the home to someone else, the mortgage lender can call your loan due in full immediately. Even if the mortgage lender doesn't find out immediately, you are still the person who is on the mortgage & on the hook for payment & you would also owe rent to the new owner. You run the risk of foreclosure, eviction & damage to your credit. There also may be tax issues...

You should consult an Attorney who handles residential real estate matters well before you move forward.
1 vote Thank Flag Link Sun Mar 28, 2010
Not being familiar with this format, I was not able to quickly figure out how to reply and thank you all for your opinions and help or provide additional information. I used the answer option to my own question so I am sorry if I am not following protocol.

While I understand my thinking is unconventional, and possibly not even rational, what I was hoping to accomplish, of course is rather selfish. I don't have a lot of faith in the housing market because I think we as a nation are making the same mistakes as before. Recently, when the great deals were showing up, our house couldn't of been sold fast enough to take advantage of one (without going below market). Since I can't see property values increasing to previous levels, I see this as good of a time as any to sell. If an investor sees these times as a buying opportunity, I would be happy to help them take advantage todays discounted prices, while removing some of the risk in trying to find a tenant. Getting out from under my mortgage is a must for me. I would think a clean sale necessary and substantially safer.

3-5 years ago everyone in my neighborhood was an owner. Now with so many renters, the neighborhood has lost it's appeal to me. I am not looking to make money in the transaction & I would be willing to pay fair+ just to avoid moving. If the market increased 30% (shame on me) that would be my loss. If I was paying the going rate for rental, I would understand an increase when the lease was up. For what these ppl are paying for rent around here, it is safe for me to say fair+ is still less than what I am paying (principle, interest, taxes and insurance).

As I said before I know my thinking is unconventional, and possibly not even rational. I am not in love with the house/property I am in but like it enough to stay for now. I have been told to sell and rent an apartment. This is not something I could/would do. As for the long term, I see things getting worse so, selfishly, I would like to position myself into a more fluid position.

I would not take a real step forward without getting a real estate attorney (selling or buying) and it is nice knowing all of you feel the same way. It (IMO) lends a lot of credibility to each of your responses. I have heard of to many good people telling their stories of misfortune to think I am smarter or luckier. In fact years ago, if not for an extremely ethical real estate professional with a great reputation in the area, I would of found myself at the mercy of a seller. She saved me the cost of a new roof and two other major expenses. She herself suggested an attorney would have easily saved the day, not allowing the circumstances to even exist.

Thank you for your time and professionalism,
Ray
0 votes Thank Flag Link Mon Mar 29, 2010
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