Protecting the Seller on a Home Land Contract Sale

·         Obtain a Credit Report on the Buyer.

·         Demand a Title Insurance Policy.

·         Ask for a Hefty Down Payment.

·         Carry the Financing Short-Term.

·         Verify the Buyer’s Employment.

·         Ask for Personal References.

·         Insist the Buyer Obtain a Homeowner Insurance Policy.

·         Set Up a Disbursement Account.

·         Collect the Taxes From the Vendee.

·         Include a Late Payment Charge in the Land Contract.

·         Ensure Continued Maintenance and Care.

·         Prevent the Vendee From Assigning the Contract.

·         Talk to a Lawyer.

Selling on a Land Sales Contract

Topic: Selling on a Land Sales Contract

 Land sales contracts are a vehicle to consider when you desire a built in income and a better interest rate than other investments may provide. 

In Oregon it is not uncommon to use a note and trust deed in lieu of a land sales contract in order to create a similar stream of income on a sold property.  The process for foreclosure is different, as a trustee is given the “power of sale” in the event that the Vendee defaults on the payments.

 When selling on contract it is possible to graduate the interest rate as a hedge against inflation.

 When you have sold on contract you have shifted the burden of maintenance to the buyer.

 It is not a type of sale that should be considered if the desire of the seller is to participate in a 1031 exchange.

 It is recommended you seek legal advice to determine which instrument may best suit your situation.

If there is a current loan on the property it is important to speak to an attorney to determine if this is an option for you.

Is there a good way to live in your investment and still have it pay for itself?

Case Scenario:

You are a gainfully employed first time home buyer more interested in investment property than a home.  You would like to live in one side of a duplex and rent out the other side.

How should you go about it?  Obtain FHA owner-occupied financing, with 3% down, or by using a non owner-occupant, but related, co-borrower.  This scenario allows a gift down payment from a relative.

What are the pros and cons of this scenario?  Living by your tenant is not always easy.  Could be the best way to cash flow in the short term.  Live in for 2-5 years, save additional down payment, rent out owner unit and buy another investment property. 

I have equity in my home, now I want a multi-plex. How do I get there?

Case Scenario:

You are a single person with a home you have owned for 7 years.  You have roughly $100,000 in equity and you would like to buy a four unit multiplex.

How should you go about it?  Take out a 2^nd with a mortgage broker or a direct lender bear in mind that the higher the loan to value ratio on your home will be, the higher your rate will be.  That becomes your down payment and you can purchase a 4 unit rental in the price range of $400,000 to $500,000.  I would be inclined to go higher and get larger units with nicer amenities such as 3 bedrooms in combination with 2 bedrooms, garages and fireplaces.  This makes the units attractive to a higher priced tenant and gives you ability to push rents as a nicer unit.

What are the pros and cons of this scenario?  Borrowing the equity in the form of a 2nd could increase the debt service “against” the 4 plex so that you do not have any cash after debt service.  Benefit in foreseeable future would be write off and increase cash flow with pushing of rents at turnover or on an annual basis.  4 doors require more energy than 1.  Harder to sell a multi family in a pinch.  Harder to tap the equity of the rental, if not impossible, without refinancing first mortgage.

I have a home with considerable equity. Should I invest in Real Estate?

Hector and Martha are well established and have had several investment accounts for the past 15 years.  Their children are finally finished with college and they have disposable income and a great deal of equity in their large home.  They would like an investment that does not take regular action from them, but still pays financial rewards.

Solution:

Meet with lender.  Determine amount of debt load that is comfortable for new investment and where the down payment will be accessed from.  Consider rate and terms for borrowing from home equity or loss of income off investments.  Vet out what type of investment interests them.  Does their amount to invest qualify them to build a portfolio of more than one property?  How is the best way to do that, considering the learning curve and desire to be hands off?  Retain a mentor and good Realtor to advise on the purchase and structure of the portfolio.  Don’t anticipate that in the Portland market an investment property, residential or commercial, will offset any borrowed funds for down payment.

Option 1:  It is determined that the couple has $150,000 to put toward down payment on property.  35% down payment on a commercial property purchased through a qualified Realtor and using a leasing agent could allow the buyers to obtain a building with a price of $500,000.  Leases are renewable, with built in increases on an annual basis.  Many investments are “NNN” or “Triple Net,”  with tenant paying all utilities and maintenance.  Consider buying in an urban renewal area where Portland Development Commission has storefront improvement grants.  This would be good for increased value, lower day to day involvement (if any), potentially lower costs.

Option 2:  Split the down payment into 3 different rental homes.  Look in area’s that have lower price per square foot, newer homes, with higher rent values.  A good scenario is Southeast Portland, or a few pockets I prefer throughout town.

Buy 3 homes valued in the range of $250,000.  3 – 4 bedrooms, 20% down, increasing the offer price to cover the closing costs.  Rent homes in the range of $1450-$1500 / month, outflow on each house on a monthly basis $1659.  Cash loss $150 – $200 a month per home.  Consider it a payment toward retirement.  Take depreciation and maintenance expenses against your W2 income and gain from the appreciation of the properties.  Hold for 10 years, having an exit strategy in place for retirement.  Expect to cash flow even within 18 to 24 months.

Option 3:  Split the funds into 2 different rental homes for 30% down, total payments on two homes in similar area would be $1399, total rents $1450 to $1500, cash flow $150 a month on each home on average at outset.  Expect rent increases over time.

What if you want to turn your home into a rental?

John and Diana own their first home.  It is a 2 bedroom and they have outgrown it.  It is in an up and coming part of town that is close to transportation.  They have grown to like the area but they can’t stay, they need something bigger.

Solution:  Qualify for a new owner occupied loan with lender.  Take any equity necessary from the existing home for the down payment on the new house and potentially additional reserves. 

Once qualified for the new home, begin shopping for it.  At same time ready existing home to become a rental.  Fix all maintenance items and attend landlord classes.  Become familiar with the landlord documents.  Meet with an attorney and create an LLC.  Once moved in to the new home, clean and advertise the prior home.  Taking applications, until one passes screening criteria.  Transfer title of prior home into newly established LLC.  Meet with tenants to accept rents and deposits in verified funds.  Do paperwork and take photos at move in.  Follow up in a week for a punch list and get with the mentor for guidance along the way.

In a matter of years John and Diana will have the opportunity to revisit additional leverage to purchase additional rentals, if desired.  They will have landlord experience to qualify for investor homes, or they can repeat the process, buying another owner occupied residence.

Learn more tips like these by attending Landlord Study Hall www.landlordstudyhall.com.

Sushiland

This is my favorite cheap eat’s place.  My husband and I go here all the time.  The wait staff is friendly and the manager is very nice (shout out to Young!).  It is very busy after 11:45 any day of the week but dies down after about 1:30.  Dinner is best had early, say around five, or after 7:30.  They close at 9 which is a little early for me.  They are in walkable Lloyd Center area, a favorite area of mine.

Red Rooster Cafe

This is one of the best places to hang out and Chillax!  I had a meeting in the same block and popped for a quick Americano.  The wait staff was amazingly friendly.  The location is central, and they have an amazing selection of eats.  I don’t eat sugar and I try to eat somewhat healthy.  There was plenty to munch on!  They are right on the max line on SW 10th Street and SW Washington.  I would definitely recommend them for a quick meal or drink and conversation.  A 5 on a scale of 1 to 5!

Wong’s Garden, Milwaukie, Oregon

My husband is faithfully trying new places with me (or insisting I try them!).   On the agenda last night was a new Chinese restaurant, to us, Wong’s Garden off of Highway 224 in the Albertson’s shopping complex.  We entered to be handed the menus and told to seat ourselves.  When our waitress came with tea, she promptly ignored my poor husband as he tried to order a diet Coke.  I noticed that our napkin’s looked like they had gotten wet previously and mine had green food bits on it.  This was not starting out good!  After we waited about 10 minutes my husband had to stand up and chase the other server to ask if we could order.  Things improved mildly from there, the waitress we had was friendly, just never very attentive.  When we were ready to leave my husband again had get up to ask for our check.  I swear the pot stickers were the frozen kind out of a bag.  Hubbie wasn’t impressed with the quality of food, but I rated it a 3.5 out of 5.  Would we go back?  Nope.  Onward, we hope we find a better place next time.

The Ugly Mug

Greatest atmophere east of the river!  This cute urban coffee shop boasts good vibes, good eats, and free wi-fi.  It’s locally owned and serves Stumptown coffee, my personal favorite.  I have had casual meetings here and have enjoyed meeting clients here as well.  They are open later than some – until 9pm.  Visit them at 8017 SE 13th Ave., Portland, OR 97202 and support local!